In this column, we call David Wehner “the Chicken Little of Silicon Valley.” He has told us that Facebook is going to have a hard time making money so many times that this column has called him that.
But this time, the sky might fall.
Wehner, who has overshadowed strong results for years with fears about slowing growth that never came, made another warning on Wednesday. The shares of Meta Platforms Inc. plunged almost 23% in the extended session. In this case, however, the CFO’s warning came at the same time as other bad news: Facebook’s first-ever quarterly drop in active users, competition that is actually hurting the dominant social network, and an attack from the world’s most powerful company.
Another big number: $10 billion, which is how much money Meta will lose this year because of Apple Inc. AAPL, +0.70% and its privacy changes.
Is it possible to sum up all the changes we’re seeing in iOS? We can’t be sure about this, because it’s an estimate, Wehner said in a conference call on Wednesday. In terms of how it will affect our business, we have a wide range of possible effects on our business. We think this is a big problem for us, and we’re working very hard to mitigate those effects and keep ads relevant and effective for our users.
Several internet companies have been worried about Apple’s changes to iOS for more than a year, from Snap Inc. SNAP, -4.72 percent to Pinterest Inc. PINS, -8.93 percent to Facebook, and they haven’t been happy about it. The changes let people choose not to share their data or have it tracked by companies like these. Apple, which has a growing advertising business, is in charge of that juicy data.
As Meta executives kept saying, Apple is just one of their “headwinds.” Another one is called TikTok, and both of them have a lot in common. Facebook said that the rival app was taking a bite, and that its rival service, Reels, is growing but doesn’t make as much money as other Facebook products do. So far, Meta’s automated advertising systems haven’t been able to figure out how to show ads for this newer type of content. Meta’s COO said this during a call.
Sandberg said that the company has been through these kinds of product transitions before, and it has a “playbook” for how to work through them and make them make money, so it knows how to do this. That doesn’t mean that Facebook doesn’t make changes to its products on its own. For example, it made its own version of Snapchat’s features with Stories, and now it has a clone of TikTok’s Reels.
“We don’t have to start from scratch,” she said. “We already know how to make money with stories.” In general, we’re optimistic about the future because we think people will get more involved with this. There’s a lot of work to be done here, though.
According to Facebook CEO Mark Zuckerberg, though, the company’s new name, the “metaverse,” is where the future is going to be. Facebook broke out the financials for Facebook Reality Labs for the first time. This shows how far away that dream is from becoming a reality. For the fourth quarter, it made $877 million, mostly from sales of Oculus virtual-reality headsets. The loss for the same period was $3.3 billion. This is how Reality Labs lost money for the whole year of 2021. The company made $2.2 billion in revenue, but lost $10.2 billion.
“You’re also going to be able to access these worlds from your Facebook or Instagram app, and maybe more in the future.” That’s what Zuckerberg said Wednesday. “So this will allow us to build even more rich social experiences where you can connect with your friends in the metaverse, whether or not they’re in VR or not,” says Josh. But he also said that Meta is making “meaningful progress” in the seven areas it is investing in, but “our path ahead is not yet clear.”
There were a lot of things that led to a forecast for year-over-year revenue growth of 3% to 11%, which was well below what Wall Street was expecting. Third Bridge analyst Scott Kessler wrote in a short note to clients that Meta could see single-digit revenue growth for the next quarter because its business is more affected by Apple’s changes than Google and YouTube were.
It might be wise to take Meta’s CFO’s cry of “wolf” this time because new competitors are taking market share and other people are blocking important advertising data. It looks like the social network is coming to the end of a long growth spurt. The other side could be very bad.