World

Facebook’s giant crash explained in 10 points

February 4, 2022
Bharat Times

Meta is prioritizing investment in its Reels short-form video feature (AFP).

San Francisco:
Facebook’s parent firm Meta on Thursday reported a more than $200 billion drop in stock value — comparable in size to New Zealand’s economy — after results that raised doubts about the troubled social media giant’s future. Some reasons why this happened:

Here’s your 10-point cheatsheet for this big story:

  1. Facebook’s growth that had been on an upward trend late last year slipped with a daily drop in the number of people using the social network. Meta executives specifically warned of increased competition from video star TikTok as well as messaging services such as Telegram and Slack.

  2. The firm is prioritizing its reels short-form video feature as well as investing in apps like WhatsApp and Instagram to keep up with users. That means spending big on services that make it harder to make money from a digital advertising machine than from the Facebook social network.

  3. Meta executives told analysts that Apple-implemented changes to the software running the iPhone are reducing Facebook’s ad-targeting efficiency. In an update to iOS, Apple requires app publishers to ask permission before collecting data, much to the detriment of companies like Meta that rely on it for ad targeting.

  4. As iPhone users opt out of data sharing to target ads in Facebook apps, marketing messages become less precisely targeted and thus less profitable. “We believe the overall impact of iOS on our business is on the order of $10 billion in 2022,” David Wehner, Meta’s chief financial officer, said on an earnings call. “So, this is a very significant headwind for our business.”

  5. Advertising in Meta also took a hit from the broader market, as businesses cut budgets due to supply troubles, labor turnover and the pandemic woes. According to Baird Equity Research analyst Colin Sebastian, Meta is facing a “perfect storm” that is combating growth. “Our concerns regarding the near-term growth outlook for Meta were not only realized, but are worse than we thought,” Sebastian said in a note to investors.

  6. Meta CEO Mark Zuckerberg portrays the Metaverse as the future of life on the Internet. In that spirit, the tech company changed its name to “Meta.” The immersive online world of the Metaverse is expected to take many years and cost many billions to build.

  7. A “Reality Labs” unit in Meta devoted to technology for intermixing the real and virtual worlds reported a loss of $10 billion last year, according to an earnings release. Major investors in the stock market are notorious for waiting long periods of time for big returns, to trade stocks based on the potential for quick profits.

  8. As Meta seeks to make a “transformation” to better compete with the likes of TikTok, a hit with younger users, regulators in the US and elsewhere have vowed to curb its power.

  9. In January a federal judge ruled that US regulators’ reworked antitrust case against Facebook could go ahead, saying the complaint was stronger and more detailed than the version rejected in 2021.

  10. The US Federal Trade Commission has alleged that Meta has an illegal monopoly by acquiring potential competitors now like Instagram and WhatsApp. The lawsuit, which could have taken years to go through the courts without a settlement, called for a “division of assets,” including WhatsApp and Instagram, to restore competition.

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