Meta’s Q4 earning results were undeniably disappointing and Meta’s share price took the hit, dropping over 26% after the results were announced. This comes after Facebook transitioned to Meta amid controversy at the end of 2021, when Facebook CEO, Mark Zuckerberg, was accused of putting profits before the safety of its users. The company was accused of permitting the spread of misinformation and online harm on its various platforms to boost engagement. However, this transition signifies a shift to a new strategy for the company; building the metaverse.
Meta’s Q4 earning results show the cost of its obsession to investors, who will become increasingly concerned. Meta had clearly hoped that the re-focus would save the company’s reputation, but this has not paid off. Its metaverse development research division, Reality Labs, also saw disappointing results and growth has plunged. Even Meta’s typically strong advertising business took a hit as the company failed to navigate Apple’s privacy changes.
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Meta fights other platforms for users’ attention
However, it is too simple to blame Apple’s privacy changes on its advertising woes. Meta’s underwhelming number of daily users on both Facebook and Instagram signifies intensifying competition for user engagement with other platforms such as TikTok. Facebook saw a drop in daily users from the previous quarter, a first in the companies’ history.
It appears that Meta is sacrificing its core business model for its fascination with the metaverse. Betting big on the metaverse is not a bad thing—the technology is set to be huge and will provide a multitude of opportunities—but it will take at least another decade to really get going. However, Big Tech companies need to tackle this new horizon from a position of strength.
Meta’s core problems
According to GlobalData’s scorecards, which rank companies on how they are expected to perform across a range of themes, Meta ranked 11 out of 50 companies in ‘advertising’—but were as low as 21 out of 50 in ‘social media’. If Meta wants to maintain its users and be in a better position to tackle the metaverse, the company needs to fix its core business model first. This would include developing its short-form video content and rebuilding its advertising before ploughing more money into a currently non-existent metaverse.
Nonetheless, The Reality Labs venture signifies Meta’s attempt at developing its own hardware, such as its VR and VR headsets. The Oculus headset is proving popular, and the app was the most downloaded app on Christmas Day in 2021. Other Big Tech companies, such as Google and Amazon, have followed a similar path, and Meta is using the buzz around the metaverse to spearhead this venture. It is evident that Meta is playing the long game with the metaverse, however, it will have to demonstrate its value before investors become impatient.
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By GlobalData
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