Meta Platforms Inc. develops products that enable people to connect and share with friends and family through mobile devices, personal computers, virutal reality headsets, and in-home devices worldwide. It operates in two segments, Family of Apps and Facebook Reality Labs. The Family of Apps segment’s products include Facebook, which enables people to connect, share, discover, and communicate with each other on mobile devices and personal computers; Instagram, a community for sharing photos, videos and private messages; Messenger, a messaging application for people to connect with friends, family, groups and businesses across platforms and devices; and WhatsApp, a messaging application that is used by people and businesses to communicate in a private way, as well as other services. The Facebook Reality Labs segment provides augmented and virtual reality related consumer hardware, software, and content that help people feel connected, anytime, and anywhere. The company was formerly known as Facebook, Inc. and changed its name to Meta Platforms, Inc., in October 2021.
At the time of writing, the stocks of Meta dropped already almost 40% since the beginning of the year, due to various concerns we will further explore here. It has not been uncommon that stocks drop sharply on missed earnings in the last few months, as we have seen with PayPal or Adobe already, but we think that this time the drop was kind of justified.
Starting with the basics, the company blamed the rising popularity of TikTok as one of the reasons why their earnings weren’t perfect. The problem in affirming this is that Facebook tried to copy TikTok implementing Reels, just like YouTube implemented YouTube Shorts, meaning that they are losing or, worse, they have already lost the leadership in a market that it was created by Facebook itself. Indeed, Facebook previously was the market leader in non-search digital advertising, implementing new ways to use social media and monetization: now, it’s just following what the competitors are doing in the hope of not be forgot. It’s not too different from what Intel did a decade ago, and we can all see in foresight how did it work out. Secondly, by focusing on evolving Reels to compete with TikTok, the company is divesting resources away from the advertising business, the only revenue stream that it has from that market. Finally, the change of name from Facebook to Meta is essentially an admission that the company isn’t the platform it used to be anymore. On the other hand, social network platforms are a generational thing: we have seen it when younger demographics moved from Facebook to Instagram, and again now that they are moving from Instagram to TikTok.
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