Feb 3, 2022 - Technology

Facebook users drop, while metaverse runs up a tab

Recreated from Meta; Chart: Axios Visuals

Meta on Wednesday said the Facebook app lost roughly 1 million daily active users in the most recent quarter — its first ever drop.

Why it matters: The numbers reinforce the sense, inside and outside the company, that the Facebook social network is now a legacy product for Meta, where the focus has shifted to newer realms like messaging, Instagram video and the metaverse.

  • A recent New York Times story found that engineers looking to advance in the company have been pushed to work on metaverse products.

Details: While Facebook's core app still produces much of the company's revenue, new features — like Facebook's TikTok copycat Reels — are the primary drivers of growth, not the basic News Feed.

  • On a call with investors, CEO Mark Zuckerberg said there's been a shift of engagement within its apps towards video products like Reels. Those products are harder for the company to monetize compared to other video products in the News Feed and in Stories (strings of video and text).
  • Zuckerberg also conceded that the company expects continued headwinds from increased competition for people's time, citing TikTok as a big competitor to Reels.

Be smart: Meta's stock plunged after-hours trading Wednesday in response to weak revenue growth forecasts for the first quarter.

  • Those weak forecasts, attributable to continued headwinds from Apple's privacy changes, show the vulnerability of Facebook's business model being tied to targeted advertising against social networking, as opposed to search.
  • Google parent Alphabet posted a huge earnings beat Tuesday, mostly tied to growth of search-based advertising, as well as advertising on YouTube.
  • Meta said it expected Apple's ad tracking changes to cost it $10 billion in ad revenue in 2022.

Between the lines: The company is betting its future on the metaverse, but that vision is still many years away.

  • This earnings report included $2 billion in revenue last year tied to Meta's Reality Labs operation, which is spearheading the metaverse effort. But overall the group lost $10 billion.

The big picture: Meta's earnings disappointment come after a difficult year for Facebook.

  • The tech giant's stock took a big hit in response to a series of whistleblower reports and SEC complaints that alleged the company ignored research that their products were harmful, especially to minors, and that the company misled investors on user numbers.
  • The company is currently facing intense regulatory scrutiny that will likely make it harder for it to make new acquisitions.
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