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

A twelvemonth ago, earlier Facebook had turned Meta, the societal media institution was sporting a marketplace headdress of $1 trillion, putting it successful rarefied territory with a fistful of U.S. exertion giants.

Today the presumption looks overmuch different. Meta has mislaid astir two-thirds of its worth since peaking successful September 2021. The banal is trading astatine its lowest since January 2019 and is astir to adjacent retired its 3rd consecutive 4th of double-digit percent losses. Only 4 stocks successful the S&P 500 are having a worse year.

Facebook's concern was built connected web effects — users brought their friends and household members, who told their colleagues, who invited their buddies. Suddenly everyone was convening successful 1 place. Advertisers followed, and the company's ensuing profits — and they were plentiful — provided the superior to enlistee the champion and brightest engineers to support the rhythm going.

But successful 2022, the rhythm has reversed. Users are jumping ship and advertisers are reducing their spending, leaving Meta poised to study its 2nd consecutive driblet successful quarterly revenue. Businesses are removing Facebook's once-ubiquitous social login button from their websites. Recruiting is an emerging challenge, particularly arsenic laminitis and CEO Mark Zuckerberg spends overmuch of his clip proselytizing the metaverse, which whitethorn beryllium the company's aboriginal but accounts for virtually nary of its near-term gross and is costing billions of dollars a twelvemonth to build.

Zuckerberg said helium hopes that wrong the adjacent decade, the metaverse "will scope a cardinal radical and "host hundreds of billions of dollars of integer commerce." He told CNBC's Jim Cramer successful June that the "North Star" is to scope those sorts of figures by the extremity of the decennary and make a "massive economy" astir integer goods.

Investors aren't enthusiastic astir it, and the mode they're dumping the banal has immoderate observers questioning if the downward unit is really a death spiral from which Meta can't recover.

"I'm not definite there's a halfway concern that works anymore astatine Facebook," said Laura Martin of Needham, the lone expert among the 45 tracked by FactSet with a merchantability standing connected the stock.

Nobody is suggesting that Facebook is astatine hazard of going retired of business. The institution inactive has a ascendant presumption successful mobile advertising, and has 1 of the astir profitable concern models connected the planet. Even with a 36% driblet successful nett income successful the latest quarter from the anterior year, Meta generated $6.7 cardinal successful nett and ended the play with implicit $40 cardinal successful currency and marketable securities.

The Wall Street occupation for Facebook is that it's nary longer a maturation story. Up until this year, that's the lone happening it's known. The company's slowest twelvemonth for gross maturation was the pandemic twelvemonth of 2020, erstwhile it inactive expanded 22%. Analysts this twelvemonth are predicting a gross drop.

The fig of regular progressive users successful the U.S. and Canada has fallen successful the past 2 years, from 198 cardinal successful mid-2020 to 197 cardinal successful the 2nd 4th of this year. Globally, idiosyncratic numbers are up astir 10% implicit that stretch, and are expected to summation 3% a twelvemonth done 2024, according to FactSet estimates.

"I don't spot it spiraling successful presumption of currency flows successful the adjacent fewer years, but I'm conscionable disquieted that they're not winning the adjacent generation," said Jeremy Bondy, CEO of app selling steadfast Liftoff.

Sales maturation is expected to hover successful the azygous digits for the archetypal fractional of 2023, earlier ticking backmost up. But adjacent that stake carries risks. The adjacent generation, arsenic Bondy describes it, is present moving implicit to TikTok, wherever users tin make and presumption short, viral videos alternatively than scrolling past governmental rants from distant relatives with whom they mistakenly connected connected Facebook.

Meta has been trying to mimic TikTok's occurrence with its abbreviated video offering called Reels, which has been a large absorption crossed Facebook and Instagram. Meta plans to summation the magnitude of algorithmically recommended abbreviated videos successful users' Instagram feeds from 15% to 30%, and Bondy speculates the institution volition apt "get tremendous gross travel from that" algorithmic shift.

However, Facebook acknowledges it's aboriginal days for monetizing Reels, and it's not yet wide however good the format works for advertisers. TikTok's concern remains opaque due to the fact that the institution is privately held and owned by China's ByteDance.

Sheryl Sandberg, who's leaving the institution connected Friday aft implicit 14 years arsenic main operating officer, said successful her last net telephone successful July that videos are harder than photos successful presumption of ads and measurement, and that Facebook has to amusement businesses however to usage the advertisement tools for Reels.

"I deliberation it's precise promising," Sandberg said, "but we've got immoderate hard enactment up of us."

Skeptics similar Martin spot Facebook pushing users distant from the halfway quality feed, wherever it makes tons of cash, and toward Reels, wherever the exemplary is unproven. Martin says Zuckerberg indispensable cognize thing important astir wherever the concern is headed.

"He wouldn't beryllium hurting its gross astatine the aforesaid clip helium needs much money, unless helium felt similar the halfway concern wasn't beardown capable to basal alone," Martin said. "He indispensable consciousness helium has to effort to determination his viewership to Reels to vie with TikTok."

A Facebook spokesperson declined to remark for this story.

Zuckerberg has astatine slightest 1 large crushed for interest beyond conscionable stalled idiosyncratic maturation and a slowing economy: Apple.

The 2021 iOS privateness update, called App Tracking Transparency, undermined Facebook's quality to people users with ads, costing the institution an estimated $10 billion successful gross this year. Meta is counting connected artificial intelligence-powered advertizing to yet marque up for Apple's changes.

That whitethorn magnitude to small much than a band-aid. Chris Curtis, an online selling adept and consultant, has seen societal networks emergence and autumn arsenic trends alteration and users determination along. And that occupation isn't solvable with AI.

"I'm aged capable and I was determination erstwhile MySpace was a thing," said Curtis, who antecedently worked astatine Anheuser-Busch and McKinsey. "Social networks are switchable, right?"

When you look astatine Meta's idiosyncratic numbers, Curtis said, they suggest the institution is "not successful a bully position."

The past clip Facebook's marketplace headdress was this low, it was aboriginal 2019 and the institution was dealing with the continued fallout of the Cambridge Analytica privateness scandal. Since then, Facebook has suffered further reputational damage, astir notably from the documents leaked past twelvemonth by whistleblower and erstwhile worker Frances Haugen.

The main takeaway from the Haugen saga, which preceded the sanction alteration to Meta, was that Facebook knew of galore of the harms its products caused kids and was unwilling oregon incapable to bash thing astir them. Some U.S. Senators compared the institution to Big Tobacco.

Denise Lee Yohn, writer of brand-building books including "What Great Brands Do" and "Fusion," said there's small grounds to suggest that Facebook's rebranding to Meta precocious past twelvemonth has changed nationalist cognition of the company.

"I deliberation the institution inactive suffers from a batch of disapproval and skepticism astir whether they are a unit for bully oregon evil," Yohn said.

Rehabilitating a damaged marque is hard but not impossible, Yohn said. She noted that successful 2009, Domino's Pizza was capable to successfully travel backmost from a crisis. In April of that year, a video made arsenic a prank by 2 edifice employees went viral, showing 1 of them doing disgusting acts with nutrient portion cooking successful 1 of the company's kitchens. Both employees were arrested and charged with nutrient contamination.

In December 2009, Domino's launched a selling blitz called the "Pizza Turnaround." The banal climbed 63% successful the archetypal 4th of 2010.

Yohn said the company's attack was, "We've been told our pizzas suck, and truthful we're really going to marque substantive changes to what we are offering and alteration people's perceptions." While it sounded initially similar "just selling speak," Yohn said, "they really truly did change."

Zuckerberg, connected the different hand, is not "coming crossed arsenic a person who is superior astir changing his civilization and astir changing himself and astir benignant of creating a institution that volition beryllium capable to measurement into the aboriginal that he's envisioning," she said.

Meta's reputational deed could besides harm the company's quality to enlistee top-tier talent, a stark opposition to a decennary ago, erstwhile determination was nary much prized landing spot for a hotshot engineer.

A erstwhile Facebook advertisement executive, who spoke connected information that his sanction not beryllium used, told CNBC that adjacent though TikTok is owned by a Chinese parent, it present has an borderline implicit Meta erstwhile it comes to recruiting due to the fact that it's viewed arsenic having little "moral downside."

Ben Zhao, a machine subject prof astatine University of Chicago, said he's seeing that play retired connected the crushed arsenic an expanding fig of students successful his section are showing involvement successful moving for TikTok and ByteDance.

In bid to enactment competitive, fixed however the marketplace has punished tech stocks this year, Zhao said Meta and Google are "having to wage much and are having surely to handout much lucrative banal options and packages."

Still, Zuckerberg has a past of proving his doubters wrong, said Jake Dollarhide, the CEO of Longbow Asset Management successful Tulsa, Oklahoma.

Dollarhide remembers erstwhile investors ran from Facebook not agelong aft its 2012 IPO, scoffing astatine the company's quality to determination "from the PC to the mobile world." Facebook's mobile concern rapidly caught occurrence and by precocious 2013, the banal was disconnected to the races.

Zuckerberg's occurrence successful pivoting to mobile gives Dollarhide assurance that Meta tin currency successful connected its bet-the-farm determination to the metaverse. In the 2nd quarter, Meta's Reality Labs division, which houses its virtual world headsets and related technologies, generated $452 cardinal successful gross (about 1.5% of full Meta sales) and lost $2.8 billion.

"I deliberation Zuckerberg is precise agleam and precise ambitious," said Dollarhide. "I wouldn't stake against Zuckerberg conscionable similar I wouldn't stake against Elon Musk."

Dollarhide's steadfast hasn't owned Facebook shares, though, since 2014, preferring the trajectory of tech companies similar Apple and Amazon, 2 of his apical holdings.

"The world is they tin beryllium perceived arsenic a worth institution and not a maturation company," Dollarhide said, regarding Meta.

No substance what happens successful the adjacent twelvemonth oregon 2 oregon adjacent three, Zuckerberg has made wide that the aboriginal of the institution is successful the metaverse, wherever he's banking connected caller businesses forming astir virtual reality.

Zhao, from University of Chicago, says there's immense uncertainty surrounding the metaverse's prospects.

"The existent question is — are regular users acceptable for the metaverse yet?" Zhao said. "Is the underlying exertion acceptable and mature capable to marque that modulation seamless? That's a existent question and that whitethorn not beryllium each up to Facebook oregon Meta astatine this point."

If Zuckerberg is right, possibly 10 years from present Meta's banal terms from the depths of 2022 volition look similar the discount of the decade. And if that happens, predictions of a decease spiral volition beryllium mocked similar a 2012 cover communicative from Barron's, headlined "Facebook is worthy $15" with a thumb pointing down. Four years later, it was trading adjacent $130.

WATCH: Needham's Martin is simply a Meta skeptic