Meta: Facebook parent Meta’s long stock market woes in 2022

(BFM Bourse) – The social media giant was forced to cut 13% of its workforce this week due to the weight of rising costs. Slow ad spending and problems with Apple’s actions have sent its shares down.

Weakened by rising costs and collapsing revenues, Meta decided to drastically cut its workforce. Facebook’s parent company announced this week that it is cutting 13% of its workforce, a total of 11,000 jobs. Hiring is also frozen until March 2023.

“At the start of Covid, the world quickly went online and the rise of e-commerce led to huge revenue growth. Many people predicted that this would be a permanent acceleration that would continue after the end of the pandemic. And I did. , and therefore significantly increase our investments decided,” said Facebook CEO Mark Zuckerberg.

“Unfortunately, things did not go as I expected. Not only did online commerce return to previous trends, but the macroeconomic downturn, increased competition and loss of advertising signal meant that our revenues were much lower than I expected. I was wrong and I take responsibility for it,” the leader continued.

70% diving

The decision was expected as Meta reported a 19% year-over-year increase in total spending to $22.1 billion in the third quarter. Wall Street also praised the group’s announcement, with Meta shares rising 5.2% on Wednesday. But the stock still lost nearly 67% in all of 2022*. Since the beginning of the year, the course of action seemed like a long fall.

Two warning shocks of more than 20% hit stocks particularly hard in February and late October, each time due to disappointing prospects and results. In the third quarter, the group saw revenue fall 4%, the second consecutive quarter of declines, while earnings per share fell short of expectations. The main challenge facing the group remains the decline in online advertising spending.

“It’s an advertising market that’s in serious trouble. It’s definitely the first industry that gets hit when you have a recession or an economic downturn like that,” said Angelo Zino, chief technology industry analyst at CFRA Research, quoted by S&P Global. Market intelligence.

Competition from other platforms, particularly TikTok, owned by China’s Bytedance group, is also fierce.

iOS in question

The troubles have also affected other social networks, such as Snap Inc., which has lost about 76% since the beginning of the year, and Pinterest, which is down about 35%. Apple, on the other hand, is clearly not dependent on advertising, stands up better, and also benefits from top-of-the-line products and, therefore, demand that is less sensitive to economic conditions. The Apple group thus limits its year-to-date decline to 16.7%.

Meta, which owns Instagram and WhatsApp in addition to Facebook, is also suffering from privacy policy changes in Apple’s iOS operating system in 2021. These changes require all applications to receive user approval. application) made it difficult to monetize audiences through targeted advertising. Earlier in the year, Meta estimated the revenue loss due to these changes for the entire 2022 fiscal year at about $10 billion.

Added to this are the Federal Reserve’s interest rate hikes, which have lowered valuations of technology groups in particular, and the strength of the dollar, which has dampened earnings abroad.

“I think a lot of tech companies were hoping they could ride out the weak economy, but as we saw during earnings season, it’s going to be a long, cold winter for a lot of them. we are weathering this economic storm,” Dan Ives, chief equity research analyst at Wedbush Securities, told NBC.

An Uncertain Turn into the Metaverse

As CNBC noted, investors are also skeptical of Meta’s transformation into a metaverse, an immersive virtual world that was supposed to enable innovative experiences for the general public. It was this core orientation that led the group to change its name to become “Meta” in October 2021. The American company hopes to create a new immersive and disruptive space that will attract brands.

But for now, the metaverse has mostly resulted in significant cost increases for Mark Zuckerberg’s group. Reality Labs, the group’s specialist division, saw its spending hit $4 billion in the third quarter, a 24% increase, mainly due to technology spending. Its operating loss widened to $3.7 billion from $2.6 billion a year earlier. Since the beginning of the year, Reality Labs’ losses totaled $9.4 billion.

“We expect Reality Labs’ operating losses to increase significantly year-over-year in 2023,” Meta said.

The market is not alone in its skepticism. Apple CEO Tim Cook (yes, Apple again) was skeptical about the possibilities offered by this immersive virtual space in early October. He felt Facebook was on the wrong track because “the general public doesn’t know what the metaverse is.”

Even at the level of meta workers, mayonnaise is difficult to accept. According to an internal note published by the specialized media The Verge in early October, the teams responsible for the development of Horizon Worlds, the group’s flagship in the metaverse, do not use this virtual world much, which hurts. from insects.

“Meta is in the midst of an identity crisis. The company has one foot in a risky long-term bet on the metaverse, and the other foot can’t compete with TikTok,” commented Mike Proulx, director of research at Forrester. .

He added: “Neither bodes well for Meta in the near term, and more drastic cost-cutting measures are inevitable as the company tries to regroup ahead of a bleak 2023.” .

* The course was suspended late Friday afternoon.

Julien Marion – ©2022 BFM Bourse

Are you following this action?

Get all the information about META in real time:

Leave a Reply

Your email address will not be published. Required fields are marked *