Never Seen Before $251 Billion Drop In Meta Value: What's Next For Investors?

Within 24 hours of Meta Stock tumbling, Facebook parent Meta wiped away over a quarter of its market capitalization. The incident is undoubtedly more prominent than a regular eyebrow-raiser incident, where a company of such scale lost an approximated value of $250 billion.

Mark Zuckerberg announced in late October that his company is taking a transformational flip with the name change to Meta. The founder's letter hints that it is an upcoming chapter in technology and promises to be a problem-solver for small businesses.

But is the company heading towards its goal?

What does the future look like for Meta, especially after the recent loss? What are the reasons assessed behind this loss? Most importantly, what is the reaction of investors after this market shift? Let's untie these knots one after the other.

Key Takeaways

• Facebook parent suffered a $252 billion wipeout on February 3, 2022.
• It is the most significant single-day drop in market capitalization of US public companies, dwarfing the $180 billion loss of Apple in 2020.
• Facebook also recorded its first fall in daily active users. Daily users worldwide fell from 1.93 billion in the third quarter of 2021 to 1.929 billion.
• It is a big loss for the company, especially after its earlier row with employees turned whistleblowers.
  

Credit: Statista

Factors Behind Such Value Loss

• Increasing Decline in Facebook Users

Facebook - the most significant app of Meta - was founded in 2004. The user drop in the third quarter of 2021 was the biggest ever since then. Meta had hit a major setback because Facebook is a globally popular app, and the reduced number of users reflects the dent in popularity. It also reflects that users are choosing Facebook alternatives. We will explore this factor.

• The Disinterest Continues

The company is also dealing with a drop in users in Africa and Latin America. It is yet another concern as the organization needs to grow outside of its U.S. domain. However, it's not the first decline for Meta in other countries.

Interestingly, Frances Haugen - a whistleblower - foregrounded internal documents last year that warned Facebook about losing young users. One of the documents presented that "engagement is declining for teens in most western, and several non-western, countries."

• Strong Competition From Tiktok

According to Zuckerberg, the video-sharing app Tiktok is a massive problem for Meta. "People have a lot of choices for how they want to spend their time, and apps like TikTok are growing very quickly," he asserted on a call. Chinese-owned Tiktok has about a billion users across the globe. A majority of them are content creators and teenage groups. It is a prime reason why Meta struggles to compete in the young consumer market.

Reels are the counter to Tiktok; that's why Meta has high hopes. Zuckerberg states, "This is why our focus on Reels is so important over the long-term, as is our work to make sure that our apps are the best services out there for young adults." However, he realizes that it means slower revenue growth in the near short term.

• Slower Revenue Growth

97% of revenue in Meta is dependent on advertising. It helps users by building their profiles and matching them with the advertiser's requirements. So, suppose an advertiser is looking for a customer in a given place, with specific demographic, and with a specified set of interests. In that case, Meta may target those ads to particular groups based on the information it has gathered about them.

• A Hit From Other Competitors

Meta, which also owns Instagram and WhatsApp, claims that recent modifications to Apple's iOS software for iPhones have harmed the company. According to Apple, users must now provide permission for companies like Meta to collect data on them when they browse the web. As a result, users have reacted negatively, and the company's ad targeting has become less effective.

During a conference call with investors on Wednesday, Sheryl Sandberg, Meta's chief operating officer and the architect of Facebook's advertising strategy, said the company had ways of targeting users with fewer data. "There are a lot of things small and large businesses can do to take advantage of the many targeting and measurement tools we have," she added.

Credit: Unsplash

From Investor's POV

Investors are not as motivated to invest in Meta as they were before. But is there any silver lining insight? The question is worth asking when a bird's eye view of numbers looks like this.

The overall revenue grew in the last quarter of 2021, up to $33.7bn compared with $28.1bn for the same previous year. However, a US profit measure, net income was $10.3bn for the quarter, sliding down nearly $1bn from last year. Nevertheless, the data shows that Meta remains a prosperous and profitable business.

Meta released a first-quarter projection that revealed sluggish usage of its social media apps and concerning trends in ad sales. It will take several quarters, if not years, to fix the flaws. Meanwhile, the company's transition to the metaverse, a big bet on an uncertain technology, will necessitate repairs. Metaverse is yet to pass the business litmus test. Hence, an enormous gamble on unproven technology is dangerous.

By the end of a long week of tech results, it was evident that Meta's issues were distinct and not indicative of a broader industry collapse. Alphabet, the parent company of Google, reported solid profits, owing to increased demand for advertising space on Google Search and YouTube. The following day after Meta's horrific report, rivals smaller in size - Snap and Pinterest - came across as a gift for investors with better numbers, which also involved the first-ever profit of Snap.

A Conclusive Future

Metaverse needs patience and money to see growth further. The word "metaverse" refers to a melding of the physical and digital worlds in which individuals conduct their professional and social lives using a combination of virtual and augmented reality. Zuckerberg is so confident that Meta is the next big thing in technology that he renamed Facebook Inc.

However, there are many years left before the technology becomes a fully integrated part of people's life. So Meta's virtual reality unit, Reality Labs, which produces the best-selling Oculus V.R. headsets, reported a $3.3 billion loss on revenues of less than $1 billion.

Nevertheless, because this is the future of Meta's business, anticipate revenues to rise along with expenditures. Hence, the investors and team of Meta have to be patient to see significant growth.