February 3, 2022 – Meta Inc. stock plummets 26 percent, losing a jaw-dropping $250 billion in valuation in a single day. Zuckerberg himself saw his personal net worth drop $29 billion, 25 percent of his overall value. For context, that loss alone is near the top 100 list of GDPs by country.
This record-setting loss in market cap will go down as the biggest in history. The stock price has further declined weeks after the initial descent in what appears to be a bearish run for the tech giant.
Behind the Scenes
What could possibly be at the center of this road to ruin? Not as much as you may think.
The news comes after the company met Q4 revenue goals but missed earnings-per-share projections. What spoke the loudest, however, was the flagship platform, Facebook, seeing its first-ever loss in daily active users. Facebook’s global DAUs dropped by 10 million compared to the previous quarter, decreasing from a mere 1.3 to 1.29 billion. This milestone is the first time in Facebook’s 17-year history that active users have shown a decrease.
Daily and Monthly Active Users have become a core metric in Wall Street to apply valuations to Meta and tech platforms alike. It signals the number of people regularly using the platform, leading to estimations of perceived usage and ability to generate revenue. More platform usage leads to more inventory, and more inventory leads to more potential for the company to generate revenue. To put it in perspective, a town with 5,000 people has limited billboard space compared to a city of 5 million.
Zuckerberg offered up TikTok as the primary culprit of this decline, noting the popularity boom of the Chinese-owned platform has driven increased competition. TikTok is attracting the younger generation as their primary social media site. As a result, they may not see Facebook as relevant to them, especially since its where their parents and grandparents are interacting.
It’s not all teens, however. TikTok currently reaches over 30 million millennials who also may be seeking a different form of entertainment from the standard Facebook feed and newer placements like Watch. While Meta’s Instagram platform sees success with younger demographics, Facebook has lost the battle of capturing the 12- to 17-year-old demographic. Instead, Facebook’s global presence has reached a point of market saturation with older demographics.
This also isn’t the first time Meta has seen such a record loss. Less than four years ago, in wake of the Cambridge Analytica scandal, the company saw the eighth highest decline in market cap in a single day at $120 billion. The difference here is that the previous scandals and controversies were something they could theoretically overcome. The decrease in DAUs signals a new problem: the current population of the earth.
And this is where the foundational concern of Facebook’s slip in DAUs poses a problem with Wall Street. As its older users age out, the battle for youth becomes a necessity for long-term sustainability. Instagram will keep Meta afloat, but we will continue to see product updates–such as Reels–attract younger generations. Further acquisitions are a likely development as well, along with its work-in-progress ecosystem for the metaverse to which they are investing $150 million over the next 3 years.
From an advertising perspective, platform growth is important for investment and performance, too. The increased inventory allows for a larger, addressable audience and the ability to reach more of the users who are important to our businesses. Where there is scale, there is efficiency. This initial decline that Facebook has seen, however, is a drop in the cyberspace bucket that signals the earliest stages of a multi-year decline for an otherwise top investment choice. This is the key reason why the stock decline doesn’t signal a change that requires immediate, largescale shifts for advertisers.
Even after this update, Meta properties have three of the only six platforms to have 1 billion Global Monthly Users with Whatsapp and Instagram on the prestigious list. Facebook messenger, in seventh place, is even nearing 1 billion itself. From a US perspective, Meta’s reach still heavily outnumbers even the closest competition by a landslide. TikTok, Meta’s closest competitor in terms of MAUs, reached a milestone of 90 MAUs, falling short of the 126 million and 180 million users currently on Instagram and Facebook, respectively. Pair this with Meta’s best-in-class ad tech and it makes for a strong rationale as to why Facebook and Instagram will still be included within nearly every digital campaign strategy for years to come.
As Facebook’s user base ages and the metaverse progresses, Meta will need to step up their battle for the younger generation that seems to be blinded by the ring lights for their next TikTok post.