By Jawad Abbas, Staff Writer
On February 2nd, 2022, Meta announced its Q4 earnings report, which revealed a dismal quarter for the company in the latter months of 2021. Meta’s poor earnings reports resulted in the stock price plummeting by a whopping 26% in one day. But what exactly did Meta’s earning reports reveal that caused the company to lose around $251 billion in market valuation?
First of all, Meta missed the mark in terms of revenue growth for the fourth quarter. Meta, which makes nearly all of its money from advertising, reported $10.3 billion in profits during the last quarter of 2021, down from $11.2 billion it made during the same three-month period in 2020. Meta warned in its earnings results that revenue for the current quarter would come in at about $27 billion to $29 billion, well below the $30.25 billion median estimate of analysts surveyed by Bloomberg. Meta also reported that the depleting user numbers for the quarter ended in December had stagnated.
Not only was the fourth quarter shaky in terms of revenue growth, the earnings report also revealed that the company could struggle even more in 2022 due to Apple’s new iPhone privacy changes. Meta CFO Dave Wehner said on a call with analysts after the company’s fourth-quarter earnings report “[Meta believes] the impact of iOS overall is a headwind on [the] business in 2022… [it’s] on the order of $10 billion, so it’s a pretty significant headwind for [Meta].” Apple’s App Tracking Transparency feature is said to reduce targeting capabilities by limiting advertisers from accessing an iPhone user identifier. In other words, less targeted ads to consumers will result in a decrease in consumer spending on social apps such as Facebook or Instagram, the two most crucial streams of revenue for Meta.
To add to Apple’s new privacy changes, Meta is seeing an increase in competition for social media dominance with apps such as TikTok and Snapchat among others soaking up users of the younger demographic. Meta held a company-wide virtual meeting where Zuckerberg echoed his remarks, telling employees that the social networking giant faced an “unprecedented level of competition,” with the rise of TikTok, the rival viral-video platform. In July of 2020, Instagram launched a copycat of TikTok called Reels, which the company is now prioritizing in order to bring the younger demographic aboard the metaverse.
Finally, Meta reiterated its intention to go full speed into the development of the metaverse in the earnings report. Meta broke out its Reality Labs segment for the first time, comprising its future-focused business that aims to develop the metaverse. The segment made $877 million in revenue in the fourth quarter with an operating loss of $3.3 billion. By trying to be the first company to establish a functional realm in the metaverse, Meta continues to invest billions of dollars into its Reality Labs segment, with no plans of slowing down anytime soon.
All in all, Meta suffered from its poor performance in the fourth quarter of 2021 but investors such as Kevin O’Leary still believe that the company has a ton of upside and that new investors in the company should be trying to “… take advantage of a 24-25-26 percent discount.”