With the relatively recent news that Apple would restrict the ability of apps to track user's habits, Meta, the artist formally known as Facebook, stated that this would cause them to lose upwards of $10B in sales just this year. That news, along with the massive and questionable metaverse spending update, shares of the social media giant slumped 26% that Thursday session.
If you aren't familiar with the way Facebook/Meta functions, targeted ads and spying on you is their bread and butter. Remember that one time you talked about needing a new pair of jeans with your friend? Now judging by your in-stream ads on Instagram, your phone thinks your closet is exclusively denim, ala Jay Leno. Nearly 98% of Meta's total revenue is purely from ads. They pulled in an astounding $114B in ad revenue for 2021.
A $10B per year loss in revenue from Apple iphone users is unfortunately just the start. Apple's iphone users make up approximately 26% of global smart phone market.
Now, a few weeks removed from the Apple bomb, Google has stated that they will take similar action in regards to the privacy policy changes. Google states that it wont be a complete lock out in the way Apple chose, but a "privacy preserving alternative path." I'm not an expert in the world of targeted ads, but if you cant target people anymore, then they're not exactly targeted ads are they? Google owns 72% of the global smart phone market. If Meta is planning on losing $385M per 1% user base. Thats an additional $28B per year smack to their bottom line. The privacy changes could result in a potential loss of $40B per year.
For the full year 2021, Meta reported a $39.3B profit. With the new expected slashes to ad revenue, they would be operating on a loss. Meta hasn't operated on a loss in over a decade. We would have to look all the way back to 2008 to find a loss on the books.
The perfect storm is starting to develop for Meta, and it will be interesting to watch it play out. The next hurricane approaching their coast is the user base. Meta/Facebook's user base has become stagnant. They reported subtle declines across the board. Im sure you have noticed this in the real world also.
The facebook user base has been declining with the exception of your mom and her friends using the status bar as a search engine by mistake. They have struggled to maintain the interest of the under 30 age bracket, their most lucrative segment. Worse yet, Facebook is struggling to attract the younger audience also. The teenage user base has declined rapidly. A 2019 study suggested they would lose 45% of that base up to 2021, and its only getting worse and they know it. With the likes of Snapchat and TikTok rapidly stealing their market share, this massive shift to the Metaverse feels like a Hail Mary for the company.
The metaverse isn't something new either. The idea of a virtual space has been around for decades. Even the term "metaverse" was coined by science fiction author Neal Stephenson in 1992. The original Matrix movie is literally about a virtual world, and that debuted in 1999.
With the explosion of the NFT market and Crypto over the last year, this virtual addiction is more popular than the great Beanie Baby surge of the late 90s, than Pogs, more excitable than Gary Vee at a yard sale. You get the idea. The problem with Meta is the perception that they are at the forefront of this new world when they most certainly aren't. I question whether or not they know who their audience is anymore. Their presentation of avatars was expressed as something new but felt akin to the avatars that Xbox and Wii had for their players more than 10 years ago. Audiences were quick to poke fun.
Meta's metaverse presentation
Xbox Avatars (Microsoft)
Those same avatars are basically nonexistent. Xbox mostly abandoned them under 3 years from their debut.
Meta is dumping close to 10% of their revenues into this new metaverse concept, and while it may seem like the hot commodity right now, only time will tell. Judging by the past, this wont end well.
Black Mirror (2011) (IMDB)
Meta's current market cap sits just under $600M as of writing this, sliding from the $1T mark set in June of 2021. I expect that number to slide more over the next few quarters.