Facebook scrambles to escape stock’s death spiral as users flee, sales drop

Meta is experiencing low trades leading to its worst performance in the S&P 500. The organization’s issues are increasing due to the increasing influence of Tik Tok and changes made by Apple to iOS, affecting their ability to advertise. Laura Martin, an analyst for Needham, said that she did not think the company’s core business seemed dysfunctional. In 2021, before Facebook changed to Meta, the market had a market value of $1 trillion, making it among the top global companies in market share. 

Now, the story has changed. Meta has lost more than 65% of its value since it peaked in September 2021, its stock is at its lowest since January 2019, and it is almost closing out its third quarter of double-digit percentage decline. 

The company’s business grew due to the network effect; users brought family members and friends, who informed their workmates and invited everyone. Suddenly users are in a single space. Advertisers came, and the organization made huge profits, building capital to hire the best and brightest to sustain the process.

In 2022, things changed. Users were walking out, and advertisers were not spending as much, leaving the company to record a second straight reduction in quarterly revenue. Companies have removed the social media login button from their online platforms.

Zuckerberg revealed he hopes that the metaverse will be available to a billion people within the next ten years and host billions of dollars of digital finance. He admitted to Jim Cramer that the North Star was able to reach the figures in the mentioned duration resulting in a massive economy on digital assets. Investors are taking it with a pinch of salt, and how they are quick to sell their stock has analysts wondering if the pressure signals a death spiral the company may not recover. 

No one is saying that Facebook could probably go out of business since the organization is dominant in mobile advertising and its business model is one of the most profitable. Even if its net income dropped by 36%, the company earned $6.7 billion in profit and ended the period with more than $40 billion in marketable and cash securities. 

The problem the company is currently facing is a Wall Street problem since it means it is not growing. Since the beginning of this year, the company has provided better results, and its slowest period in terms of revenue growth was during the 2020 pandemic, when it grew by 22%. Many predict a drop in revenue. 

The number of those who actively use Facebook in Canada and the US has reduced in the last two years from 198 million in 2020 to 197 million in mid-2022. The number of global users has increased by 10% and is expected to increase by 3% in 2024. Jeremy Bondy, the CEO of Liftoff, an app marketing company, said the company was not attractive to the next generation, which was worrying. 

Analysts anticipate its sales growth will balance in the single digits during the first half of next year before moving up. The next generation, as Bondy says, is going to Tik Tok, which allows users to create and watch short, viral videos instead of scrolling past random posts. 

Meta has been trying to adopt TitTok’s strategy by providing short videos known as Reels, as seen on Facebook and Instagram. The company intends to increase the algorithmically suggested short clips on Instagram from 15% to 30%, and some speculate the company may increase its revenue flow. 

Facebook knows it is still early to monetize the short videos, and it is unclear how the strategy would affect advertisers. TikTok’s operations are murky since it is privately operated and owned by the Chinese Company ByteDance. 

Sheryl Sandberg, who left the company on Friday after more than a decade as the chief operating officer, stated in her last earnings address in July that clips are challenging to include advertisements and measure as compared to photos, and the company has to educate businesses on how to use the ad features in Reels. She acknowledged the strategy looked promising, but they had a lot of work.