Dusseldorf Meta Platforms’ latest quarterly report in early February made stock market history. Facebook’s parent company reported slower revenue growth, missed profit targets and active users fell for the first time in its 18-year history.
Investors were shocked, Meta’s stock market value plummeted $230 billion in one day – an unprecedented price drop. Since then, stocks have continued to fall, with market capitalization shrinking another $120 billion.
Analysts and shareholders are therefore eagerly awaiting the figures for the first three months of the year, which Meta will publish on Wednesday after the US stock exchange closes. “It hasn’t gotten better,” said RBC Capital’s Brad Erickson, who expects another “difficult quarter.”
The stakes are high for founder Mark Zuckerberg and his company, which is still worth a good half a trillion dollars on the stock market. Analysts expect average revenue of $28.3 billion, about eight percent higher than the same quarter last year.
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But does the meta work? The doubts are justified: the important advertising business is weakening due to the war in Ukraine, inflation and stricter data protection regulations, both at Apple and in the EU. “While everyone is moving their advertising to digital formats, Meta is having a tough year,” says Martin Garner, COO of advertising consultancy CCS.
The number of users continues to decline
As in the previous quarter, the number of users could fall further. With Instagram and Facebook banned in Russia alone, Meta loses about three million daily active users, or about 1.4% of the total. This may not seem like much at first glance, but even a slight drop in February was enough to scare off shareholders.
Meta is also losing its appeal, especially among younger users. They are more concerned with the Tiktok video channel than with Instagram or even Facebook. “The number of users will decline, particularly because economies around the world are growing more slowly due to the rising cost of living,” Garner adds.
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The new Metaverse business field won’t help that much. Meta has invested ten billion dollars in merging the real and digital worlds in the past year alone. However, the project is still in its infancy: Meta’s “Horizon Worlds” virtual reality game has only 300,000 users to date.
“Meta is investing huge amounts of money in the Metaverse – it’s a big bet on the future of the internet,” says Garner. “Development costs are significant while sales remain minimal for the foreseeable future.”
Quest 2 as a ray of hope
However, there are growing signs that the Metaverse could one day be a growth engine for the group. The focus is on Quest 2, which launched a few months ago.
Virtual reality glasses are cheaper, lighter and more powerful than their predecessors. Meta allows developers to release games based only on Quest 2 – so they don’t need to be compatible with the weaker previous model. Titles like “Red Matter 2” or “Bonelab” therefore set new standards in terms of graphic quality.
“Quest 2 could be a spark for the Metaverse, just as the iPhone spawned its own app development ecosystem and its own app store,” said Tibor Merey, partner at Boston Consulting.
In a new study, BCG estimates the market potential of the Metaverse at $400 billion in 2025, of which $47 billion is attributable to virtual reality (VR) and augmented reality (AR). “Virtual reality and augmented reality are growing together, soon you won’t be able to tell the difference,” says Merey.
Low advertising activity
Until then, Meta faces a tough core business. This is doing badly for a number of reasons: advertisers are holding back due to the war in Ukraine and inflation, especially in Europe. The new European directives of the “Digital Services Act” are also likely to slow down future sales there. And as in the previous quarter, Apple poses a problem for the social network with its reinforced data protection regulations.
Analyst Brad Erickson recently surveyed ad agencies that represent small advertisers. Many small and medium-sized businesses were therefore considering placing their digital advertising on new channels for the first time. Erickson then lowered his price target, as did his colleague Jason Helfstein of Oppenheimer. Meta obviously faces tough times.
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