In the past year, the company that used to be called Facebook has lost almost two-thirds of its market value. It was also a year ago — coincidentally? — that it changed its name to Meta Platforms.
From a market capitalisation of almost $1-trillion, Meta is now worth “just” $340bn — a staggering plunge in shareholder value.
Meta’s share price from September 7, 2021, when the shares reached a record high of $382.18, has slumped by 66.8% to last Friday’s closing price of $126.76. Investors have turned bearish, and the carnage might not be over yet.
Where did it all go wrong for Meta and its CEO, Mark Zuckerberg?
To be fair, many US tech stocks have sold off aggressively this year, mainly due to the US Federal Reserve’s steep hikes in interest rates designed to break the back of the worst inflation in the US in more than 40 years.
Monetary tightening, as well as cyclical issues in some areas of tech — like a collapse in demand for new computers and PC components after the end of Covid and the work-from-home trend — have hammered many tech stocks in 2022. Semiconductor giants like Nvidia, AMD and Intel have been particularly hard hit.
Overvalued tech companies, whose valuations soared in recent years, have also come crashing back to earth: Netflix, for example, is down 62% in the year to date, while software maker Adobe has slumped by about half.
But Facebook — sorry, Meta — has been among the worst hit of the megacaps. Its market value, once not far off Google’s or even Amazon’s, is now a tiny fraction of that of those companies.
There are plenty of reasons for this, beyond the Fed’s moves:
- Meta is facing growing competition from TikTok, and despite the US firm’s efforts to emulate its Chinese rival, the younger audiences that Zuckerberg craves for his own platforms, including Instagram, are turning their attention elsewhere.
- Privacy changes to iOS — whether for self-serving purposes by Apple or out of genuine concern for its users — have made it more difficult for companies, including Meta, to offer targeted ads to iPhone owners, and that’s slammed earnings. Meta has estimated it will take a $10bn hit to revenue in 2022 as a direct result of the change to Apple’s software, which allows iPhone (and iPad) users to ask that apps not follow them around the web.
- Meta has instituted a hiring freeze, and there are reports of impending layoffs. In July, Zuckerberg not only warned of a looming recession in the US but said it would be severe. “If we’re realistic, it’s likely that a lot of people in the company shouldn’t be here,” he said in a Q&A forum with employees. Not exactly the sort of stuff that investors want to be hearing.
These challenges come on top of a miserable time for Zuckerberg and his colleagues following the Cambridge Analytica scandal.
When Zuckerberg renamed Facebook Meta a year ago, he was not only signalling a shift in strategic focus to the metaverse, he was also likely hoping to draw a line in the sand — to put the company’s troubled past behind it and to focus on the future. Zuckerberg is a technologist, after all; like many leaders in Silicon Valley, tech-led change is what drives him.
The only problem with Meta’s pivot is that investors don’t appear nearly as excited as Zuckerberg about his vision of the future. They seem far from convinced that virtual reality (VR) and 3D online interaction is where the world is headed in the near term.
This correspondent is also sceptical. Have you, dear reader, ever worn a pair of VR goggles? I have, and I didn’t like the experience. Not only does it cut you off from the world around you (though Meta’s latest goggles, unveiled last week, try to address that with outward-facing cameras), but for a wearer of glasses, these systems are cumbersome to use. And when I start moving around and interacting in the virtual world, I quickly develop motion sickness. I love new tech, but I have no interest in buying Zuckerberg’s goggles, or any VR headset for that matter.
More exciting, for now, is augmented reality (AR): an AR headset still allows you to see the world around you and is far less disorientating. AR is more likely to appeal to a mass audience than VR, provided the headset is small and light enough — big obstacles to overcome. Even then, AR feels like a solution looking for a problem.
Apple has been working on an AR headset for years. If the rumour mill is right, the headset could go on sale as early as next year. Maybe Apple will be able to convince consumers that there’s utility in owning and wearing one.
As for VR, it’s difficult to see large-scale demand any time soon. Zuckerberg’s metaverse strategy, which is costing Meta a fortune in research and development costs, is a high-stakes bet on a future that consumers ultimately might spurn in favour of something else.
McLeod is editor of TechCentral
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