Facebook is so used to growth that the recently concluded quarter was a shock to the social media giant. It hemorrhaged significant daily active users, DAU, in the last quarter of 2021, the first time in its history.
The news caused a massive 20 percent drop in its stock, amounting to about $200 billion. However, Meta’s problem is much more than the loss of users because its other networks, Instagram and Whatsapp, did not experience any growth during the same period. More importantly, Facebook lost one million users in the North American market, where it makes the most money through advertising.
Facebook dropped from 1.93 billion daily users to 1.929 billion in absolute numbers. This is not unconnected to the fact that Facebook has been losing its appeal to younger people, a problem it has been trying to tackle.
That is not to say Meta is not bringing in profit, as the company still hauled in almost $40 billion for the year. Most of the profit comes from its lucrative ad business. However, some divisions within the company are losing billions of dollars. For example, the unit that makes Quest VR headsets, VR software, and handles the metaverse effort, Reality Labs, lost $10.2 billion on top of revenue of $2.3 billion for the year. The Quest hardware didn’t perform shabbily because outside estimates put total sales at about 10 million units. However, the next-generation headset might not lose Meta that much money because the CEO, Mark Zuckerberg, has confirmed it would sell in the high end of the price spectrum.
Zuckerberg has also confirmed Meta would increase investment in Reality Labs in the near future as it seeks to make VR and AR the building blocks of the new generation of computing platforms. However, with the prospect of dwindling revenue from the social media aspect of its business, Meta will have to re-strategize.
The quarter’s earnings per share did not meet Wall Street expectations, coming in at $3.67 instead of $3.84. However, Meta managed to beat forecast revenue, pulling $33.67 billion instead of $33.4 billion. Facebook, Instagram, Whatsapp, and Messenger all combined brought in $32.79 billion with a profit of $15.89 billion. Reality Labs earned $877 million and posted a loss of $3.3 billion.
Facebook faces new competition from TikTok, a video-sharing platform growing by leaps and bounds. The former social network has settled into a routine of lifting features from the latter. Still, obviously, that has not been enough to get and retain the younger generation’s attention.
In his post-earnings remarks, Zuckerberg even mentions TikTok directly.
“People have a lot of choices for how they want to spend their time, and apps like TikTok are growing very quickly. And this is why our focus on Reels is so important over the long-term. As is our work to make sure our apps are the best services out there for young adults, which I spoke about on our last call… We’ve made these types of transitions before with mobile feed and Stories, where we took on headwinds in the near term to align with important trends over the long term. And while video has historically been slower to monetize, we believe that over time short-form video is going to monetize more like feed or Stories than like Watch – so I’m optimistic that we’ll get to where we need to be with Reels too.”
He also touched on a new challenge as Apple, a valuable source of user data, changed its privacy policies and how Meta plans to deal with it. “Next up is ads. With Apple’s iOS changes and new regulations in Europe, there’s a clear trend where less data is available to deliver personalized ads. But people still want to see relevant ads, and businesses still want to reach the right customers. So we’re rebuilding a lot of our ads infrastructure so we can continue to grow and deliver high-quality personalized ads.”
However, Facebook remains widely popular globally.