Meta’s $200 billion wipeout: Just a tip of the iceberg Zuckerberg is staring at?

Facebook owner Meta has lost nearly $200 billion in a single day of trading. Its downward trend is largely influenced by the declining daily active users of Facebook and billions of losses that the Reality division incurred. But a closer view reveals it could possibly be the beginning of a vicious cycle for Zuckerberg.

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The beginning of 2022 was way beyond the expectations of Mark Zuckerberg. It is the first time in 18 years when daily active users (DAUs) of Facebook declined in any quarter. But it was Wall Street that turned into a nightmare for Zuckerberg and the team. Meta – earlier known as Facebook – lost a whopping $200 billion in terms of market cap as a result of unexpectedly disappointing performance recorded in Q4, 2021.

The odds are not in favor of Zuckerberg and it’s a tricky situation for him to keep investors satisfied. For the last few years, Meta has been investing heavily in Metaverse, which is being touted as the future of the company. However, even after years of research, huge investment, and trials, It is off to a very slow start. As per the Q4 earnings report, Meta’s Reality Labs division alone incurred a loss of a whopping $10 billion in 2021, and is still far from any fully realized vision.

Zuckerberg stated that despite all the challenges with Meta’s metaverse the direction is clear. He hinted that the launch of a new “high-end” VR headset and a mobile version of its Horizon VR experience may soon become a reality.

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This is the first time that the company has publicly shared the financial results of the AR/VR division, which sits at the core of its metaverse ambition. The acquisition of Oculus in 2014 was the first step towards this direction. However, it’s not surprising that the metaverse hasn’t turned profitable yet. The company has already hinted that its AR and VR investments would lead to a $10 billion loss. However, Meta’s fourth-quarter results combined with flat user growth as well as continued hits to its advertising company led to Meta’s stock crashing nearly 20% in a single day of trading.

One of the biggest concerns is that Facebook’s daily active user (DAU) dropped from 1.93 billion to 1.92 billion in Q4 2021. Zuckerberg blamed this change on TikTok’s increased competition but defended this trend.

“We are in the middle” of a transition to short-form video using our own services. Reels is our fastest-growing content format.” Zuckerberg said.

He was drawing attention to Instagram Reels, a clone of TikTok. He categorically mentioned that Reels is now the fastest-growing content format by far.

But unlike TikTok, Meta has yet not monetized Reels as well Stories or feeds.  

The topmost priority of Mark Zuckerberg is to attract young adults between 18 and 29 years. While Instagram Reels is focused on keeping users glued to the platform, Facebook is reorienting its platform to short-form video in order to compete with TikTok. Reels is growing strongly, but Facebook’s overall user growth indicates that the short-video feature on Instagram isn’t able to meet the expectations of Zuckerberg in terms of attracting a young crowd.

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The primary reason behind TikTok’s success, and Instagram Reels’ lukewarm performance, is the technology that sits at the core of TikTok. The secret sauce behind the unparalleled growth of TikTok is its inescapable AI algorithm. Facebook has left no stone unturned to match the performance of the algorithm but had little success in replicating the similar stickiness that TikTok has.

In 2022, Facebook’s revenue growth is expected to decline. Although its ad business remains extremely profitable – it accounted for nearly 98% of Meta’s revenue and amounted to $32.6 billion in the last quarter – the company warns that Apple’s iOS14 privacy changes could have a significant impact on the next quarter. Sheryl Sandberg, COO of Facebook, stated that the accuracy of ads targeting had decreased which has led to higher costs for driving outcomes. Zuckerberg stated that improving the performance of Facebook’s ads despite the new hurdle from Apple was his team’s one of top priorities. He also hinted that the company was rebuilding many of our ads infrastructures to reduce its dependency on various platforms.

Apple’s changes to ad targeting could prove as costly as its metaverse investments.  

“We believe the impact of iOS overall as a headwind on our business in 2022 is on the order of $10 billion,” CFO Dave Wehner said

For Meta, the year 2022 may turn up to be the most challenging year since its existence. If a lukewarm response to DAUs growth and a $10 billion loss to its one of new division could wipe off $200 billion from its market cap, imagine how wall street would react if Meta’s ad revenue declines alongside an increasing loss in Reality labs division and declining DAUs!

It appears that the dream ride is over for Zuckerberg!

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