Facebook Faces Meta-Sized Problems - InvestingChannel

November 26, 2024

Facebook Faces Meta-Sized Problems

by The Juice0355

Proprietary Data Insights

Financial Pros Social Media Stock Searches Last Month

RankNameSearches
#1Facebook567
#2Pinterest337
#3Snap163
#4Twitter134
#5Spotify121

Social Media in Trouble

As we discuss in our main story, Facebook saw lower advertiser spend as supply shortages and inflation crimped marketing budgets.

But this shouldn’t come as a surprise.

Last quarter, Snap (SNAP) already highlighted this problem. And it makes all the sense in the world.

If you sell any good or service and can’t keep up with demand, why would you stoke it further by advertising?

Yes, there are reasons like brand recognition. But that’s not really applicable for small and medium enterprises.

We expect this problem to permeate all social media advertising companies.

Yet, it begs the question as to why Google (GOOGL) wasn’t affected.

Apple’s privacy changes have a more direct impact on Facebook than they do Google searches. Facebook is losing insight into its users while Google isn’t. That’s the long and short of it.

And it’s why we were optimistic for Google even after its recent run yet cautious on social media companies in the near-term.

But make no mistake, they will come back as supply chain congestion is resolved.

Advertising

Facebook Faces Meta-Sized Problems

Key Takeaways

  • User growth slowed dramatically in Q4, giving facebook its first quarterly decline in Daily Active Users.
  • Management guided well below analyst forecasts citing headwinds from Apple’s privacy changes to lower advertising spend due to inflation and supply shortages.
  • Plus, the newly reported Reality Labs, Facebook’s AR/VR/metaverse bet lost more than $3 billion last year and will easily surpass that in 2022.

Meta (FB) reported earnings and let’s just say the market wasn’t thrilled.

Shares opened down more than 25% below Wednesday’s close.

Here’s why.

Users Growth Stalls

In one of the most disappointing quarters, Facebook’s Daily Active Users (DAUs) dropped for the first time quarter over quarter ever!

Total monthly users landed at 2.91 billion for Q4, flat compared to the prior period. The ratio of the two remained relatively flat at 66%, the one bright spot.

Hit From All Sides

Outside of internal user growth, the company faced headwinds from all over:

  • Competition Heats Up – Instagram, the company’s photo-sharing and short-form video app, faces stiff competition from TikTok. 

The company is transitioning more towards the Reels short-form video platform. While it’s gaining traction, the company is losing money on the old format while Reels still isn’t as heavily monetized.

  • iOS Problems – Meta continues to face the fallout from Apple’s (AAPL) privacy changes that make data used for personalized ads more limited, diminishing.
  • Advertisers Spend Less – With the supply of products limited across multiple industries and inflation soaring, many advertisers are pulling back on spending or switching towards lower spend advertising.
  • Costs Skyrocket – The whole metaverse venture is costing a chunk of cash. Last quarter, the Reality Labs unit lost $3.3 billion. And it could take 15 years before it turns a profit!

The Bottom Line: Near-term, Facebook could see shares trade even lower as its main profit center sees lower ad spend.

However, that will ease as global supply constraints do.

Regardless of how bad this quarter appears, the company still grew revenues 37% YOY and sent EPS up 36%.

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