3 Things to Know About Meta’s Biggest One-Day Market Decline

On February 3rd, Wall Street was deep in the red. Meta, formerly known as Facebook, made national headlines when its stock price dropped a stunning 26%, facing its worst day on the market since its IPO in 2012. 

Meta’s quarterly earnings report indicated a major dip in profits for the tech conglomerate, raising concerns for internal and external stakeholders worldwide. For marketing and communications professionals who use Meta’s services on a day-to-day basis, this massive decline might feel particularly unsettling. From Facebook ads to Instagram influencer campaigns, Meta’s family of apps is an essential component of marketing programs for businesses worldwide, and nearly a decade later, the digital paradigm may be shifting. 

You might be wondering what factors have led to this monumental market value drop for Meta. Here are three things you need to know.

The Metaverse is operating at a loss. 

Meta CEO and Founder Mark Zuckerberg’s vision for a network of 3D worlds and simulations, known as the Metaverse, has proven to be extremely costly overall for the corporation. According to the financial report, Facebook Reality Labs operated at a loss of $3.3 billion in 2021. The investment in the Metaverse has affected the overall profitability of the company and is expected to continue operating at a huge loss in 2022. Zuckerberg’s commitment to establishing a mainstream virtual reality world is proving to be a risky financial move, as the mainstream iteration of the metaverse will likely take 5-10 years to come to fruition. 

Apple’s new privacy changes have affected Meta’s ability to track user data.

In spring 2021, Apple rolled out an app tracking transparency feature where users can choose if certain apps are able to track individual online activity and collect data. Under these new rules, Facebook is required to ask user permission to share data with the app, and unsurprisingly, a vast majority of users are opting out of sharing their personal data. Beyond affecting Meta’s bottom line (since advertising generates the majority of the corporation’s revenue), this change is potentially problematic for businesses that rely heavily on generating sales or leads via targeted ads. With demographic data now being unavailable for the majority of users, it is now significantly more difficult to tailor digital ads to businesses’ target audiences.

TikTok is dominating the social media world.

An anonymous Meta staff member shared with Bloomberg that during a companywide meeting on February 3rd, Zuckerberg shared that Meta is facing “an unprecedented level of competition from TikTok.” With over 1 billion monthly active users and generating even higher traffic than Google in 2021, TikTok has taken over as the preferred social media app, especially among Gen Z and younger Millennial users. Even worse for Meta–at the end of Q4, Facebook lost nearly 500,000 monthly users for the first time in the company’s 18 year history. 

In response to TikTok’s massive popularity, Meta rolled out Reels in August 2020 and has been working tirelessly to push video content to its users, in hopes of garnering engagement similar to TikTok. Although Zuckerberg shared in a 2021 Q2 earnings call that Reels are now the largest contributor to engagement growth on Instagram (full transcript here), it has been difficult for Meta to generate ad revenue from Reels since users tend to skip over advertising content in video form–another explanation for the drop in quarterly profits.     

So, where do we go from here? 

Last week’s market value drop for Meta was an ugly surprise, but it also serves as a great reminder for marketers everywhere. As a free platform for all, the unfortunate truth is that an advertising model is the only way for Meta to be profitable. The oversaturation of targeted ads and other forms of business monetization on Facebook and Instagram is a potential factor in why users are shifting to TikTok, where advertising is more limited and more organically integrated into the platform. There was a long period of time when Facebook had a near-monopoly on social media apps, but the introduction of TikTok has shown that users will flock to new platforms if they feel it serves their needs better. 

With that being said, there’s no need to panic yet–no major changes to Facebook and Instagram are being rolled out and many of Meta’s core issues, like the Metaverse, are not of major concern to the general public. However, Meta’s acknowledgment of TikTok as a competitor should not go unnoticed by marketing and communications professionals. 

Wondering if you should integrate TikTok instead of Facebook and Instagram into your marketing plan for the year? Give us a call! Our team is ready to help you utilize this platform to its full potential.