Mark Zuckerberg thought a rebranding of Facebook to Meta last year as part of its business strategy to becoming a virtual-reality based company, instead of a company tainted with multiple data privacy scandals, could revitalize the social media company. Instead, the company lost a mind-boggling US$251.3 billion in market value in just one day on Thursday (February 3).

 

In the biggest one-day loss in history for a U.S. company, the one day crash in Meta share value saw Facebook shareholders poorer by 26.4%. Prior, the record was set by Apple in September 2020 when it lost US$182 billion in market value. Even before the Apple’s stunning plunge, the largest drop was from Facebook – a US$119 billion drop in 2018.

 

Zuckerberg, who owns about 12.8% of Meta, lost almost US$30 billion in just one trading day. His net worth dropped to US$85 billion after the market closed on Thursday. The US$250 billion wipeout was about the size of New Zealand’s entire economy or more than the total market value of Nike. It appears that Facebook is in trouble, after years of dominating the social media.

Thanks to Facebook, the technology Nasdaq index plunged 4.2% – its worst sell-off since September 2020. As one of heavyweights making the FAANG mega technology companies – Facebook, Amazon, Apple, Netflix and Google – the business of Facebook has attracted praise from Warren Buffett, even though the Oracle of Omaha did not invest in the company.

 

So, how did Facebook so screw-up? In its latest earnings report for the 4^th quarter 2021, it reported earnings per share (EPS) of US$3.67 against expectation of US$3.84, even though its US$33.67 billion revenue was slightly higher than US$33.4 billion projected. Worse, in the coming first quarter, its revenue will be US$27 billion to US$29 billion – lower than expecting sales of US$30.15 billion.

 

The biggest problem is the weak guidance and stagnant user growth. Facebook missed the numbers when its “Daily Active Users (DAU)” hit 1.93 billion versus 1.95 billion expected by analysts – its first quarterly decline in DAUs in its 18-year history. Likewise, its “Monthly Active Users (MAU)” reached 2.91 billion when analysts were expecting 2.95 billion.

For as long as one can remember, Facebook depends almost entirely on Apple and Google for distribution, hence its profits. When Apple changed its privacy policy last year, limiting the ability of Facebook app developers to reach and target users with advertisements, the company was almost crippled of its ability to leverage on Apple to make money.

 

In fact, Facebook admits that Apple’s new App Tracking Transparency (ATT) feature would take away as much as US$10 billion in revenue this year. Because Facebook does not own the device or operating system, it is at the mercy of Apple – something that Zuckerberg has been worried for years, especially after Apple’s Tim Cook mocked Zuckerberg’s business model.

 

The Apple’s CEO has been criticizing Facebook due to the company’s data privacy practices. Once, Cook said that because Facebook is a free service, the users become the products that are then sold to advertisers. In retaliation, Zuckerberg argued that Apple cannot claim to care for customers because the smartphone maker charges its users and enriches the already rich people.

However, Zuckerberg’s dependence on the interoperability of Facebook with popular mobile-operating systems that the company does not control, such as Android and iOS, was just one of the problems that spooked the investors after the disastrous earnings results. Investors are particularly worried that Facebook’s core business is fast losing users.

 

Mr Zuckerberg admits that his company’s sales growth had been hurt as audiences, especially younger users, had left for rivals, including TikTok. For the first time, the billionaire acknowledged that Meta is facing serious competition for user time and attention because users spend more time with the Chinese video-sharing app than either Facebook or Reels, supposedly Meta’s rival to TikTok.

 

It was already bad that Meta, which makes money from advertising is being blocked by Apple’s App Tracking Transparency policy, which lets people choose whether or not they want to be tracked around the internet by companies like Facebook. It becomes worse when young users are choosing TikTok, and even Google’s YouTube, for entertainment and community.

To add salt to injury, Mark Zuckerberg is spending tens of billions of dollars on the Metaverse project – something that doesn’t exist yet and won’t do for years. There is also very little evidence that people actually want to spend their lives in a virtual world. Meta has already made a net loss of US$10 billion in 2021 alone due to investment in the metaverse.

 

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February 4th, 2022 by financetwitter

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