Today the view looks much different. Meta has lost about two-thirds of its value since peaking in September 2021. The stock is trading at its lowest since January 2019 and is about to close out its third straight quarter of double-digit percentage losses. Only four stocks in the S&P 500 are having a worse year.
Facebook's business was built on network effects — users brought their friends and family members, who told their colleagues, who invited their buddies. Suddenly everyone was convening in one place. Advertisers followed, and the company's ensuing profits — and they were plentiful — provided the capital to recruit the best and brightest engineers to keep the cycle going.
Zuckerberg said he hopes that within the next decade, the metaverse "will reach a billion people" and "host hundreds of billions of dollars of digital commerce." He told CNBC's Jim Cramer in June that the "North Star" is to reach those sorts of figures by the end of the decade and create a "massive economy" around digital goods.
Investors aren't enthusiastic about it, and the way they're dumping the stock has some observers questioning if the downward pressure is actually a death spiral from which Meta can't recover.
"I'm not sure there's a core business that works anymore at Facebook," said Laura Martin of Needham, the only analyst among the 45 tracked by FactSet with a sell rating on the stock.
Nobody is suggesting that Facebook is at risk of going out of business. The company still has a dominant position in mobile advertising and has one of the most profitable business models on the planet. Even with a 36% drop in net income in the latest quarter from the prior year, Meta generated $6.7 billion in profit and ended the period with over $40 billion in cash and marketable securities.
The Wall Street problem for Facebook is that it's no longer a growth story. Up until this year, that's the only thing it's known. The company's slowest year for revenue growth was the pandemic year of 2020, when it still expanded 22%. Analysts this year are predicting a revenue drop. (...)
Sales growth is expected to hover in the single digits for the first half of 2023, before ticking back up. But even that bet carries risks. The next generation, as Bondy describes it, is now moving over to TikTok, where users can create and view short, viral videos rather than scrolling past political rants from distant relatives with whom they mistakenly connected on Facebook.
Meta has been trying to mimic TikTok's success with its short video offering called Reels, which has been a major focus across Facebook and Instagram. Meta plans to increase the amount of algorithmically recommended short videos in users' Instagram feeds from 15% to 30%, and Bondy speculates the company will likely "get tremendous revenue flow from that" algorithmic shift.
However, Facebook acknowledges it's early days for monetizing Reels, and it's not yet clear how well the format works for advertisers. TikTok's business remains opaque because the company is privately held and owned by China's ByteDance. (...)
Skeptics such as Martin see Facebook pushing users away from the core news feed, where it makes tons of cash, and toward Reels, where the model is unproven. Martin says Zuckerberg must know something important about where the business is headed.
"He wouldn't be hurting its revenue at the same time he needs more money, unless he felt like the core business wasn't strong enough to stand alone," Martin said. "He must feel he has to try to move his viewership to Reels to compete with TikTok."
A Facebook spokesperson declined to comment for this story.
Zuckerberg has at least one major reason for concern beyond just stalled user growth and a slowing economy: Apple.
by Jonathan Vanian, CNBC | Read more:
Image: Saul Loeb | AFP | Getty Images
[ed. Let's all help FB spiral into insignificance sooner rather than later. See also: Why the Past 10 Years of American Life Have Been Uniquely Stupid (The Atlantic).]
