Meta Shares Tumble By 20% As Facebook Reports First Ever Drop In Daily Users, Zuckerberg Admits Tiktok And Apple Privacy Rules Are Hurting

by Sourav Datta - Feb 3, 2022 07:29 PM +05:30 IST
Meta Shares Tumble By 20% As Facebook Reports First Ever Drop In Daily Users, Zuckerberg Admits Tiktok And Apple Privacy Rules Are HurtingMeta
Snapshot
  • Meta’s shares lost 20 per cent of their value as the company revealed startling data about losing its customers to newer social media platforms.

    The decline in user numbers comes amidst other issues that Meta faces today – heavy competition, regulatory scrutiny, growth concerns, changing user behaviour, and loss-making operations at Reality Labs.

    “People have a lot of choices for how they want to spend their time, and apps like TikTok are growing very quickly,” Mark Zuckerberg admitted during an analyst call.

Meta, the owner of Facebook, reported disappointing results on Thursday (Feb 3) as the company missed earnings expectations.

Meta’s shares lost 20 per cent of their value as the company revealed startling data about losing its customers to newer social media platforms.

Over the last 18 years, Facebook saw a drop in user numbers for the first time. In the last quarter of 2021, Facebook lost 500,000 users with markets such as Africa and Latin America contributing significantly to the decline.

The decline in user numbers comes amidst other issues that Meta faces today – heavy competition, regulatory scrutiny, growth concerns, changing user behaviour, and loss-making operations at Reality Labs. Other social media companies such as Twitter, Snapchat, and Pinterest lost $ 15 billion cumulatively as well.

Meta’s management commentary has put investors on the edge as the company highlighted a shift in user engagement towards short form content platform such as TikTok.

“People have a lot of choices for how they want to spend their time, and apps like TikTok are growing very quickly,” Mark Zuckerberg admitted during an analyst call.

Meta relies on user attention to generate revenues through advertisements – lower user engagement would mean lower revenues for Meta. Further, the shorter content formats popularised by TikTok have relatively lower revenues compared to traditional advertisement formats such as in-feed advertising seen on Facebook and Instagram.

TikTok has been pushing advertising and e-commerce, and has hired former Facebook executives to help it build its advertising business. The app had been making it easier for advertisers and influencers to market products to relevant customers, even exploring single click buys at a point.

In contrast to Meta, Alphabet showed higher than expected revenues from advertising – possibly indicating that Meta’s problems could be idiosyncratic. Apple’s efforts at protecting user privacy have played spoilsport for Meta as well, while Alphabet has managed to overcome the issues.

While its applications remain relevant for older audiences, younger audiences have lesser exposure to Facebook. Meta had been working on “Instagram Kids” for children under the age of 13, as the original application does not allow children under the age of 13 to join the network. However, the project was later called off amid backlash. The move would have helped Instagram to “catch them young”, rather than allowing children to join competing social media networks. It is now focused on achieving Zuckerberg’s goal of making young adults its “north star”, and focusing on the market through reels and other features.

The switch to the name “Meta” promised that the company would pivot into a Metaverse play with the 3.59 billion active users on its platform. The acquisition of Oculus has not worked out too well so far, with Reality Labs. The segment reported losses of $ 3.3 billion on revenues of $ 877 million for the quarter.

While Meta can easily digest such losses, the gestation period for the metaverse to become a viable technology and a profitable segment is possibly quite long. Nevertheless, Meta has hired new employees, and continues to invest into building the Metaverse. Around 20 per cent of Meta’s employee base works at Reality Labs – indicating the seriousness of the company’s focus on building the business segment.

Apart from these issues, Meta faces heavy regulatory scrutiny as governments across the world try to reduce the monopolistic hold of companies over the internet.

In the past, Meta has come under fire for interfering in political issues, moderation issues, spreading of misinformation and other serious issues. With governments and consumer growing wary about the power wielded by these large gatekeepers of the internet, there have been calls to break down internet companies into smaller parts or for regulation to be brought in. There has been a high focus on three segments that require regulations – protection of data rights, regulation of the content on the platforms, and anti-trust issues.

Nevertheless, over the years erstwhile-Facebook has proved critics wrong, with its acquisition such as Instagram and Whatsapp growing to become highly popular products, despite criticism faced at the time of acquisition. Similarly, with Meta’s significant cash balance, Meta’s metaverse ambitions could create value for shareholders. Its user base of 3.59 billion users is an added advantage for Meta. In addition, there have been discussions over banning TikTok in the United States due to its Chinese ownership. The digital space is constantly evolving, and is likely to offer Meta several other opportunities going forward.

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