Facebook recently rebranded itself as Meta Platforms, announcing its focus on building the metaverse. However, since the rebranding, Meta’s stock price has dropped over 60%, leading many to question whether this new strategic direction is a flop. In this article, we’ll examine Meta’s new metaverse plans, financial performance, user growth trends, and market competition to evaluate whether the Meta rebranding has been successful so far.
What is the metaverse and Meta’s vision?
The metaverse refers to a future iteration of the internet, made up of persistent 3D virtual worlds focused on social connection. Meta CEO Mark Zuckerberg has described the metaverse as “an embodied internet where instead of just viewing content — you are in it.”
Meta’s vision for the metaverse involves combining aspects of social media, online gaming, augmented and virtual reality, and cryptocurrencies to allow users to interact virtually in real-time within a 3D environment. The company is developing metaverse-focused hardware like its Oculus VR headsets as well as software and content for metaverse experiences.
Zuckerberg believes the metaverse will be the next major computing platform after mobile internet. He wants Meta to play a prime role in building metaverse infrastructure and shaping it as an open, interoperable environment.
How much has Meta invested into the metaverse?
Meta has invested heavily into its metaverse push. In 2021, Meta spent $10 billion on its Reality Labs segment which includes metaverse research, development, and products.
For 2022, Meta plans to spend $15 billion on Reality Labs which will likely increase to over $20 billion by 2023. This signifies Meta’s long-term commitment to metaverse development.
However, Reality Labs has also built up massive operating losses. The segment lost $6.9 billion in 2019, $9.4 billion in 2020, and over $10 billion in 2021. The increased investments planned for 2022 and 2023 suggest losses will continue mounting rapidly in the next few years.
What products and services has Meta launched for the metaverse so far?
Here are some of Meta’s major launches related to the metaverse since the rebranding:
– Horizon Worlds – A social VR world where users can explore, play games, and interact as customized avatars. Currently available in the U.S. and Canada through Meta’s Quest VR headsets.
– Horizon Venues – Attend virtual concerts, events, and experiences using an Oculus headset.
– Horizon Workrooms – VR environment for remote work, includes virtual office spaces and conference rooms.
– Presence Platform – Set of tools and application programming interfaces (APIs) to help developers build experiences for VR and AR.
– Avatarstore – Opened in January 2022 for people to buy digital clothes, accessories, and items for their virtual avatars.
So far, Meta’s metaverse products and services remain somewhat basic virtual spaces focused on social interaction, entertainment, and avatar customization. The company is still in the very early stages of metaverse development – Horizon Worlds only launched in late 2021.
Meta’s Financial Performance Since the Rebranding
Meta’s financials and growth have stumbled since the high-profile rebranding last October. Let’s examine Meta’s recent earnings results and how they’ve impacted the stock.
Meta’s Stock Price Has Plunged
Meta’s share price has plunged since 2021, obliterating over 60% of the company’s market capitalization. Here is a timeline of Meta’s stock decline:
| Date | Share Price | Market Cap |
|---|---|---|
| October 28, 2021 (Rebranding Announcement) | $315 | $1.92 trillion |
| February 2, 2022 (Q4 2021 Earnings) | $237 | $1.53 trillion (-20%) |
| July 27, 2022 | $160 | $429 billion (-60%) |
This shows the negative market sentiment around Meta’s metaverse pivoting and subsequent business results. Meta’s market cap has dropped by over $1.5 trillion since last October.
Meta is Facing its First Ever Revenue Decline
In Q2 2022 (April-June), Meta reported its first year-over-year drop in quarterly revenue, falling 1% to $28.8 billion. Revenue growth had decelerated over the previous three quarters from 56% to 7% before turning negative.
Q2 ad revenue was $28.2 billion, a 1.5% decrease versus last year, as Macroeconomic pressures contributed to weaknesses in Meta’s core digital advertising business. For example, Reels monetization is lagging older revenue streams like News Feed ads.
Looking ahead, Meta expects Q3 2022 revenues to range between $26-28.5 billion which would signify another quarterly revenue decline. This weak growth is very concerning for a company that generated over 35-45% revenue growth annually from 2016 to 2021.
Net Income Has Declined by Over One-Third
Meta’s profits are down significantly from 2021 peaks as rising costs eat into income:
| Quarter | Net Income | Change vs Prior Year |
|---|---|---|
| Q4 2021 | $10.3 billion | -8% |
| Q1 2022 | $7.5 billion | -21% |
| Q2 2022 | $6.7 billion | -36% |
Q2 net income dropped 36% annually as operating expenses jumped 31%. Reality Labs operating losses contributed to this decline in profitability. With revenue falling, Meta will struggle to maintain strong margins.
Investments into the metaverse vision are causing substantial profit compression. Meta’s net income margin dropped from 43% in Q2 2021 to just 23% in Q2 2022. Profits could continue this downward trajectory if the metaverse strategy does not start driving revenue growth.
Meta’s User Growth and Engagement Trends
Beyond financial performance, Meta’s worldwide user growth has started plateauing across its apps like Facebook and Instagram. This may reflect competitive pressures and saturation in Meta’s core social media markets.
Facebook’s User Base is Stagnating
Facebook’s monthly active users (MAUs) were 2.93 billion as of Q2 2022 – unchanged from the previous quarter. MAUs increased just 1.4% year-over-year, marking the slowest growth rate since at least 2016.
In North America, Facebook actually lost roughly 1 million daily active users between Q4 2021 and Q2 2022, dropping to 195 million. Growth is constrained across Meta’s most lucrative ad markets.
Roughly 480 million MAUs currently use Horizon Worlds and Messenger video calling services globally. But no metaverse platform has achieved mass market scale yet.
Instagram and WhatsApp Growth Has Slowed
Instagram and WhatsApp, Meta’s other social apps, are still adding users but at a decelerating rate.
Instagram:
– Q2 2022 MAUs were 1.98 billion, up 4% year-over-year versus growth above 15% in 2020.
WhatsApp:
– Q2 2022 MAUs were 2.93 billion, up 8.4% versus 14.8% growth in Q2 2021.
TikTok’s rise and replication of Meta’s features likely contributed to these apps’ waning growth. Meta expects its total MAU base across apps to either stay approximately flat or slightly shrink moving forward.
Young Users Are Migrating Elsewhere
Meta is particularly struggling to attract and retain teenage and Gen Z users, who are shifting to newer video-centric apps like TikTok and YouTube.
Among 13 to 17-year-olds in the U.S.:
– TikTok has overtaken Instagram as the second most popular social app behind Snapchat
– YouTube surpassed Facebook for third place
Meta itself admitted that: “In 2021, Facebook lost over half of its gains made since 2019 among U.S. teens.” Younger generations do not view Facebook’s apps as essential social networks anymore. This youth exodus does not bode well for long-term growth.
Time Spent on Facebook is Declining
Total time spent on Facebook was approximately 19.2% lower in Q4 2021 versus pre-pandemic levels in Q4 2019, according to Meta’s data. Engagement continue dropping in early 2022.
Fewer visits and less time spent per visit indicates waning interest in the platform among the services’ massive user base. Tougher competition and product saturation could be causing people to use Facebook less frequently.
Competitive Landscape
New competitors like TikTok and old rivals like Apple are disrupting Meta’s dominance in social media and consumer tech. Let’s analyze key competitive threats Meta is navigating.
TikTok Has Overtaken Meta’s Apps in Downloads and User Engagement
TikTok has seen meteoric rise among young people with its short form video content and almighty algorithm. The app is drastically changing entertainment and digital culture.
TikTok was the most downloaded app globally in 2021 according to App Annie data. Downloads of Meta’s apps all declined year-over-year:
– Facebook: -1%
– Instagram: -6%
– WhatsApp: -11%
In Q2 2022, people under 25 spent over 20% of their time on TikTok versus under 15% on Instagram, according to internal Meta data. TikTok is capturing attention and growth among coveted teenage and Gen Z demographics.
Meta has been blatantly copying TikTok’s video features in Instagram and Facebook to counter this threat. But TikTok’s recommendation algorithm and creator ecosystem have proven tough to emulate.
Apple’s Privacy Changes Have Hampered Targeted Advertising
Apple caused major disruptions in digital advertising when it started requiring iOS apps to ask for explicit permission to track user activity. Given most users opted out, this damaged Meta’s micro-targeting abilities and ad measurement metrics.
Meta estimated that Apple’s privacy updates shaved $10 billion off its 2022 revenue. Less data for targeted ads could continue hindering Meta’s capabilities to monetize its apps and services.
AR/VR Competition is Mounting
In the race to build the metaverse ecosystem, Meta faces stiffening competition in hardware and software/content:
Hardware:
– Sony PlayStation VR2 (set to launch in 2023)
– HTC Vive XR headsets with 5G connectivity
– Apple rumored to be launching a VR/AR headset in 2023
Software/Content Platforms:
– Roblox – Popular gaming “metaverse” with 50 million daily users
– Fortnite – Epic Games’ virtual world capabilities
– Microsoft Mesh – Enables presence and shared holographic experiences in physical or virtual spaces
There will likely be fierce competition between tech giants to develop the critical metaverse infrastructure and platforms. This could threaten Meta’s strategy to own the future virtual environment.
Conclusion
The Meta rebranding sparked big strategic changes and expectations, but real-world results have disappointed so far.
Meta is incurring substantial costs and losses to fund its metaverse vision while growth is declining for current social media properties like Facebook. New competitors like TikTok are out-innovating and gaining traction among youth demographics.
Significant investments and innovation will be required for Meta to fully realize its grand metaverse plans. But the company faces steep challenges in retaining users, boosting engagement, fending off rivals, and eventually translating its metaverse investments into profits.
With the stock price plunging, revenues falling, and uncertainty ahead, the Meta rebranding can be considered a flop up to this point. But the metaverse race is still early and fluid. If Meta eventually develops must-use metaverse platforms in 5-10 years, perspectives on this rebranding and strategic shift could change. For now, however, Meta and Mark Zuckerberg are facing strong headwinds.