Facebook’s Parent Company Just Took A Massive Hit. Here’s Why.

Shares in Meta, the company formerly known as Facebook, plummeted 26% on Thursday after the social media conglomerate reported a decline in daily users and lower-than-expected ad revenue.

The change wiped more than $230 billion off the company’s value, making it the biggest one-day stock crash in history. (The previous record holder? Also Facebook, after a precipitous drop in 2018.)

Despite the crash, Facebook remains massively profitable, with a net income of $39 billion in 2021, 35% more than the year before.

But the drop-off portends trouble for all of Meta’s projects, including Facebook and its plans for domination of the so-called “metaverse.” So ― what’s making Wall Street nervous?

After years of growth, Meta just reported a quarterly decline in daily active users for the first time ever, dropping from 1.93 billion in the third quarter of last year to 1.929 billion by the end.

While that’s not the sharpest of drops, it’s nevertheless a significant one that’s been in the making for some time now ― and one with a clear link to the company’s bottom line. Meta makes money by showing ads to users. Fewer users means fewer ads and, therefore, lower revenue.

Documents leaked by former Facebook employee Frances Haugen show that Facebook’s user base, on average, has long been aging faster than the general population, leading executives to consider highly questionable strategies to attract younger users in a bid to stay relevant.

“Any future declines in the size of our active user base may adversely impact our ability to deliver ad impressions and, in turn, our financial performance,” the company warned in a securities filing, as USA Today reported this week.

CEO Mark Zuckerberg’s starry-eyed vision for a future in which everyone has a VR headset strapped to their face hasn’t convinced investors, who are less likely to tolerate big spending now for a speculative payoff at some vague point in the future.

The company dropped more than $10 billion on the plan last year, an eye-watering figure that Zuckerberg says will be even bigger in the coming years.

“Meta is sacrificing its core business model for its fascination with the metaverse,” Rachel Jones, an analyst with the research firm GlobalData, told The Associated Press. “Betting big on the metaverse isn’t a bad thing — the technology is set to be huge and provide a multitude of opportunities — but it will take at least another decade to really get going.”

It’s a big bet, and without a clearly articulated road map, it’s one that Wall Street appears less than eager to take.

At one point, Google and Facebook were cozy enough that their CEOs allegedly signed off on an illegal advertising deal. Now they’re on slightly more adversarial terms, thanks to a tweak to Apple’s iOS last year that forced app makers, like Facebook, to ask permission before they can track users.

Unsurprisingly, plenty of those users said no, thereby limiting Facebook’s ability to target them with ads, and cutting off a source of revenue. But those advertisers didn’t disappear from the market. Instead, they’ve shifted their business to Google, which has access to consumer data independent of Apple.

Meta says Apple’s privacy tweak cost the company $10 billion in sales last year.

In years past, Facebook countered threats to its social media dominance by acquiring would-be competitors and folding them into its universe. That’s how WhatsApp, Instagram and Oculus ended up in the Facebook world.

Zuckerberg reportedly tried to buy Snapchat for $3 billion but was rebuffed, leading Facebook to instead shamelessly clone Snapchat’s features and incorporate them into Instagram, which then quickly overtook the upstart app.

He attempted the same with TikTok ― and then, having failed, he tried to squash it by characterizing it as a threat to democracy. (The popular app’s Beijing-based ownership is a legitimate cause for concern.)

All that growth-via-acquisition has drawn the gaze of federal regulators, who have long considered taking antitrust action against Silicon Valley in general, and Facebook in particular. That scrutiny all but guarantees that any attempt to expand via further acquisition is dead in the water.

If Facebook can’t buy its way back to relevance, it will need to build the next TikTok in-house. But that’s a harder proposition for Facebook now than it was a decade ago, when Facebook was a hot new startup and talented software engineers weren’t wary of its reputation.

Discontent has spread through the ranks at the company, with prominent employees staging walkouts and making noisy exits.

“I’m quitting because I can no longer stomach contributing to an organization that is profiting off hate in the US and globally,” Facebook software engineer Ashok Chandwaney wrote in a resignation letter shared within the company in 2020.

In a different resignation letter, Timothy Aveni, another engineer, accused Facebook of “providing a platform that enables politicians to radicalize individuals and glorify violence.”

“Facebook, complicit in the propagation of weaponized hatred, is on the wrong side of history,” he wrote.