Is Meta going the wrong way?

Facebook revenue declines for first time, and Meta’s downfall is expected to get worse

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Meta reported its first-ever yearly drop in revenue earlier this week, the latest sign of trouble at the social media behemoth, which has tethered its future to the fate of the theoretical ‘future of the internet’.

The company is pouring billions into its virtual reality division in hopes of Big-Banging the metaverse into existence, but back in the real world, revenue and user growth are stalling.

In February, Meta said its flagship platform Facebook lost about half a million users over the fourth quarter from the previous one – the first such decline in its 18-year history. The news caused Meta’s stock to crash 26% – the biggest ever one-day loss for a US company — wiping out more than $230 billion of its market value.

Then on July 28, Meta reported revenue of $28.82 billion in April-June 2022, a 1% decrease from $29.07 billion in the second quarter of 2021. It was the company’s first year-over-year drop in revenue since going public in 2007, and caused the stock to shed another 5%.

Having brushed off scandals that would have wiped out smaller companies, Meta now faces a trio of existential threats that one analyst has described as “the perfect storm”.

1. Apple is killing Meta’s main business and driving advertisers to Google.

Last year, Apple introduced ‘App Tracking Transparency’, a feature that lets iPhone users choose whether apps like Facebook can monitor their online activities to serve up more relevant ads.

In February, Meta said Apple’s changes would cost it $10 billion in revenue over the next year. It railed against the move, but as the little dog in this fight – for once – there’s little it else could do.

David Wehner, Meta’s chief financial officer, said many advertisers have started shifting their ad budgets to Google and other platforms that are less dependent on Apple for user data.

2. Instagram wants to be more like TikTok, and users hate it.

Not exactly shy of copying its competitors’ best features, Meta has been desperately trying to turn Instagram into a TikTok clone for several months now.

It’s been doing this over the protests of its users, especially the younger crowd. This week, though, the ‘Make Instagram Instagram again’ campaign got a thumbs up from Kylie Jenner and Kim Kardashian, who are all but synonymous with the platform, with almost 690 million followers between them.

The following day, Instagram head Adam Mosseri seemed to directly address their concerns in a video, saying these feed changes were all just tests. But Meta seems determined to press ahead with them anyway, with CEO Mark Zuckerberg saying during the company’s earnings call on Wednesday that the changes would not only remain, but intensify.

“One of the main transformations in our business right now is that social feeds are going from being driven primarily by the people and accounts you follow to increasingly also being driven by AI recommending content that you’ll find interesting from across Facebook or Instagram, even if you don’t follow those creators,” he said.

What’s prompting this shift? Consumer behaviour shifted toward video during the Covid pandemic, Needham analyst Laura Martin said earlier this month. "Meta is losing the fight for attention on mobile devices to video content including streaming, video games, TikTok and YouTube, as evidenced by its anaemic revenue growth versus these competitors," she wrote in a note to clients.

But by taking on Jenner and Kardashian, Meta would be playing with fire.

In February 2018, Jenner tweeted to her then 24.5 million Twitter followers that she no longer used Snapchat after it was redesigned in an update.

"sooo does anyone else not open Snapchat anymore? Or is it just me... ugh this is so sad," she wrote.

Snap lost a stunning $1.3 billion of market value over the next week and forever lost favour as the social network of choice for 20-somethings.

3. Antitrust headache just won’t subside.

Meta faces several investigations over anti-competitive behaviour in the US, at both the federal and state level – not to mention myriad probes outside its home country.

Zuckerberg has argued that Meta is not a social networking monopoly, saying it faces “unprecedented levels of competition” from the likes of TikTok, Apple and Google.

But even if Meta isn’t broken up, the mere threat of antitrust action has made it harder for the company to buy its way to success.

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