Meta Sees Stocks Tumble, DAUs Decline as It Ups Spending on Metaverse

Meta got off to a poor start this week. The social media giant posted sub-par quarterly earnings that tanked stock prices and handed the company its biggest one-day plunge. The social media giant also witnessed a dip in the number of daily active users for the first time since it went public.

Meta’s business woes continue into 2022 and may haunt the company throughout the year. This week, the company posted its first quarterly earnings report since the widely publicized corporate rebranding from Facebook. Unfortunately, it wasn’t enough to shore up investor confidence, especially when Zuckerberg is pouring money to dominate the metaverse sphere in the days to come.

The world’s largest social networking company’s revenue grew 20% year-over-year (YoY) in Q4 2021 to $33.67 billion. But the profitability in Q4 2021 declined by 8% YoY to $10.28 billion, indicating rising operating costs.

Meta achieved total revenue of  $71.17 billion and clocked a profit of $39.37 billion in the financial year. However, that wasn’t enough to absorb the shock and stop the bears from taking over its stock price, which plummeted by over 22% in after-hours trade and wiped out $200 billion of the company’s market capitalization. This is the biggest one-day drop in its history since it went public in 2012.

However, the ad business continues to shine even as other units underperform. That is not to say it couldn’t have done better had it not been stifled by Apple’s App Tracking Transparency policy. Nevertheless, advertising can only do so well on a platform where user interest has been waning for some time.

In Q4 2021, the company’s daily active users (DAUs) count plummeted for the first time. From 1.93 billion in Q3 2021, Facebook DAUs declined by 1 million in Q4 2021 to 1.929 billion. Monthly active users (MAUs) stalled at 2.91 billion quarter-over-quarter.

CEO Mark Zuckerberg pinned part of the problem to competition from short video sharing platform TikTok. “We’re in the middle of a transition on our own services towards short form video like Reels,” Zuckerberg said. “Reels is now our fastest growing content format by far.”

Reels, he said, has a lesser potential than other content formats when it comes to revenue generation. The company also cited inflation and supply chain challenges as contributing factors.

Looking ahead, Meta CFO David Wehner doesn’t expect the situation to ease down. “On the impressions side, we expect continued headwinds from both increased competition for people’s time and a shift of engagement within our apps towards video surfaces like Reels, which monetize at lower rates than Feed and Stories,” he said.

Wehner also expects growth to be impacted by the privacy changes in iOS, “macroeconomic challenges like cost inflation and supply chain disruptions,” impacting advertiser budgets.

But Meta still has something to look forward to from its Family of Apps business, i.e., its social platforms. It expects $27-29 billion in revenue in Q1 2022, a modest 3-11% YoY growth. The company is bleeding cash from its Facebook Reality Labs (FRL) division involved in virtual reality and augmented reality-related activities. These include the development of software and applications, Quest VR headsets and AR devices, and of course, the metaverse.

FRL earned Meta $877 million in Q4 2021, up 22.31% YoY and over 57% QoQ. At the same time, it posted an operating loss of $3.3 billion, also up 57% YoY and 25.57% QoQ. In 2021, losses from FRL climbed to $10.193 billion against losses of $6.62 billion in 2020 and $4.503 billion in 2019.

Something to look up is the fact that FRL revenue more than doubled from $501 million in 2019 to $1.139 billion in 2020, and then again in 2021 to $2.274 billion. Clearly, there’s potential in FRL if the Family of Apps business has saturated, although Instagram and WhatsApp are still going strong.

Meta venturing all out to realize its metaverse ambitions seems appropriate at the moment. The company needs to focus on cutting operating costs to win back investor confidence. However, that could be a stern challenge considering the company is just getting started on developing and refining the metaverse. Considering Meta allocated $10 billion to FRL in Q3 2021, stakeholders should expect more losses in upcoming quarters, maybe years.

Criminal Case

Meta is also subject to a criminal case filed by Andrew ‘Twiggy’ Forrest, a well-known name in Australia’s mining industry. The Fortescue Metals chairman alleges that Meta didn’t do enough to prevent scammers from using his photos to promote their cryptocurrency on the platform.

Forrest previously penned an open letter to Zuckerberg in November 2019, calling the scams abhorrent and appealing to the CEO to take action, given he has the “power and the technology to prevent” them.

The recent criminal case instituted by Forrest suggests Meta failed to do enough to stop bogus and false advertising. The filing labels Meta’s actions as “criminally reckless.”

“Social media is part of our lives, but it’s in the public interest for more to be done to ensure fraud on social media platforms is eliminated or significantly reduced,” Forrest stated. “I want social media companies to use much more of their vast resources and billions of dollars in annual revenue to protect vulnerable people — the people who are targeted and fall victim to these horrible scams with their hard-earned savings.”

“This action is being taken on behalf of those everyday Australians — mums and dads, grans and grandads — who work all their lives to gather their savings and to ensure those savings aren’t swindled away by scammers,” Forrest stated on Thursday. “I’m acting here for Australians but this is happening all over the world.”

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