Meta Has Lost $700 billion in Market Value

Meta’s stock plunge represents a shocking loss of about $700 billion in market value. Even though almost the entire tech industry has taken a beating this year, Meta’s stock dive has far outweighed the overall sector with its shares down 67% from last year.  

It has actually been one of the worst times to be a Meta Platforms investor, with the stock down a huge 70% since hitting an all-time high in the second half of 2021.

There are many reasons for Meta’s downturn such as the weakening global economy, Apple’s anti-tracking measure, and rising competition from TikTok are putting pressure on the ad business. In addition, user numbers are not growing as fast as they did in the early years. Also, there’s the huge Metaverse project which costs double-digit billions every year and is not expected to generate profits until the next decade.

In this article, we will consider why Meta may be struggling and some of the reasons which may have lead to the company’s fall from grace.

Meta is in the midst of its biggest crisis

Meta is in the midst of its biggest crisis since its 18-year existence as the company’s value has fallen 70 per cent in the past year.

Last year, Facebook was still riding high with its market value reaching a peak of more than $1 trillion in September 2021. Revenue and profits were rising as advertisers flocked to Facebook and Instagram to reach their billions of users.

In October 2021, Facebook CEO Mark Zuckerberg announced that the social media giant will change the name of its holding company to Meta to emphasise its focus on the “metaverse.”

Meta shares recently tumbled 24% to their lowest level in nearly four years following an earnings report that one Wall Street analyst described as a “train wreck.” This is a far cry from the company’s position nearly a year ago when CEO Mark Zuckerberg announced Facebook’s name change.

The hit to Meta has reduced Zuckerberg’s personal fortune since most of his wealth comes from his 13% share in the social media company. According to Bloomberg Billionaires Index, he was worth $37.7 billion as of October 27 2022, losing almost $88 billion in wealth during the past 12 months. 

Metaverse loses $9.4 billion

The problems Meta is facing aren’t limited to Zuckerberg’s costly Metaverse project, but actually, the high-risk bet comes at the worst possible time, when the company is struggling on many other fronts at once. However, Meta’s stock price decline began shortly after Facebook rebranded itself as Meta and before the company announced disastrous quarterly results in early 2022. Meta may not only have picked the wrong time, but also it may just be too early.

The company is betting big on its ability to transform into a virtual reality behemoth and whether that technology can power the next phase in Meta’s growth. 

With Meta’s core social media platforms facing an advertising slowdown, investors are concerned about Meta’s billions in spending on the Metaverse.

The early returns for Meta haven’t been good. For the first nine months of 2022, Meta has already taken a $9.5 billion operating loss in its Reality Labs segment. Management has forecast those losses would “increase significantly” in 2023.

Horizon Worlds, Meta’s new virtual space, reduced its goal for monthly active users to 280,000 from 500,000, but the space is attracting less than 200,000 users, the Wall Street Journal reported recently.

Slower Facebook growth

In comparison, Facebook had a huge base of 1.98 billion active daily users on average for September which is a 3% increase from a year ago.

This increase may seem satisfactory, but it’s no comparison to the huge growth Facebook experienced in its earlier years. And the slower growth comes after Facebook said that it had lost users for the first time in its history. The social media giant, Meta’s huge moneymaker, is battling challenges from upstarts like TikTok, which is grabbing younger consumers.

Advertising challenges

Almost all of Meta’s revenue comes from selling advertising space on its social media platforms: Facebook, Instagram and WhatsApp. However, its ad revenue fell in the most recent quarter, with sales falling 3.7% and adding to investor concerns.

An economic slowdown means that advertisers are cutting spending, with the company recently pointing to an “uncertain and volatile macroeconomic landscape” for ads. The company is also struggling with the impact of Apple’s privacy changes to apps that run on its devices. That change means consumers can ask apps to not track them, which Facebook has said will cost them $10 billion this year.

Meta’s stock may be set for a rebound in 2023

Meta Platforms received a positive review and an upgrade by a prominent Wall Street analyst on 16^th December. JPMorgan analyst, Doug Anmuth, mentioned an enhanced focus on cost discipline and other fundamentals. Meta stock, which is down about 64% this year, jumped.

Going into 2023, Doug Anmuth believes some of the challenges that Meta has faced this year will ease. He considers that Meta is showing encouraging signs of increasing cost discipline, with more to come. He mentioned several reasons for the positive outlook on Meta. The first is increased cost controls related to total expenses and capital expenditures. Another is an easing of the impact caused by Apple and increased monetisation of Meta’s Reels, which competes against TikTok.

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