Share prices in Meta – Facebook’s parent company – dropped by 20% in after hours trading on Wednesday. This came as the social media giant announced its quarterly earnings report and suggested that future growth could be compromised as a result of increased competition and a change in user engagement.
While Meta reported revenues of $33.67 billion, the overall picture was one of higher costs and a slowdown in growth. The revenues were only marginally above what analysts estimated, and there was a reduction in the number of daily active users from 1.93 billion last quarter to 1.92 billion.
What’s particularly troubling is the fact that the stalling numbers of daily users aren’t restricted to North America and Europe, as people in Latin America and Africa are also switching off Facebook.
Instead it seems that more people are engaging with the new wave of social media platforms such as TikTok. Facebook has responded with a new product called Reels that is hoped to claw back some of the users lost to the likes of TikTok, but whether Reels has been introduced too late to catch up with TikTok remains to be seen.
Facebook’s profitability for 2022 will also be hampered by the news of a new privacy change in Apple’s iOS software. This new App Tracking Transparency feature could take $10 billion of revenues away from Facebook. Plus it’s worth noting that the value of shares in Twitter and Pinterest fell by 10% following Meta’s announcement regarding the new iOS feature.
Meta isn’t the only tech company to get slammed on the markets. Both PayPal and Netflix also have seen their market value slide after underwhelming revenue figures in recent months.
The fall in Facebook stock has come at a critical time for the company that has had to counter accusations of promoting hate speech and disinformation online.
The quarterly earnings report painted a sober picture of Meta’s fortunes. It was the first time that the company had reported its quarterly earnings under its new name, and it looks like things aren’t going to be easy for Meta.
This comes at a time when the social media company revealed that it had already spent $10 billion on ‘the metaverse’. What the metaverse actually means is still up for debate, but it’s expected to be focused around the use of virtual reality technologies.
The $10 billion spent on new technologies was done so by Reality Labs – the part of Meta that has designed a range of virtual reality headsets and smart glasses. Plus it’s worth noting that Facebook bought the Oculus virtual reality company for $2 billion back in 2014 in a clear statement of intent to get into the fledgling VR market early.
While the long-term ambitions of the metaverse are impressive, the fact that such spending brought down quarterly profits by as much as 8% won’t have impressed investors so much.