Mark the date 3rd February 2022, when the parent company of Facebook Meta registered the biggest one day loss for any company in US history. The news was all over the world last Thursday , Meta shares plunged by 26.4% erasing over $230 billion in market value. To put this in perspective, TCS is valued around at $200 billion, so just imagine that in one day TCS just got vanished from corporate map. That is how big the impact. This crash came soon after the disappointing quarterly results were announced, investors panicked looking at the declining daily user growth of Facebook and Mark Zuckerberg’s plan to increase investment on Metaverse project. Investors just dumped the shares of Meta. This also hit Mark Zuckerberg’s personal wealth by nearly $30 billion. His net worth dips below $100 billion now. This whole incident once again proved my point and conviction that you cannot put your shareholder first, they are not loyal to you, they will dump you as soon as they sense uncertainty or danger, they are your happy hours friends. Your priority should be employees and customers. It will definitely be a litmus test of leadership for Mark and everyone will be watching his moves now to see how he can bail Facebook out of hot waters. So what contributed to this biggest one day crash in US market history ?
There has been lot of theories and rumours going on in business world on Facebook post Thursday crash. However after studying and analysing all probable causes, I came down to these 4 factors which contributed majorly to Meta’s devastating fate.
1. Competition – Technology is changing the world at a pace never imagined before. It changed people’s habit, it converted readers to listeners and now to watchers. There has been a massive generational shift in the last 10 years where in people went closer to .MP3 & .MP4 format and moved away from .DOC or .TXT format. Thank god we still have customers for .PNG or .JPG formats however last 2 to 3 years .MP4 format has been ruling the roost. The video market is booming and competitors like Tik Tok and even Meta’s own Instagram has contributed to fakebook’s daily decline in user growth. The organic reach of videos has been growing on Instagram, Tik Tok and even LinkedIn platform ( although LinkedIn is not exactly a competitor but they understood the power of video content ) . Facebook’s algorithm has unfortunately not been helping general users to increase their organic reach but when you compare this to tik tok or insta, a good short video or a reel can reach 5k or 10k or even more views in a few days and that too without spending money on ads. The result was that Facebook lost daily users first time in it’s history. So Facebook surely has some heavy work to be done revising their algorithm in 2022. Post Thursday’s crash, Mark has told his team to focus more on promoting video content on their platform and that he thinks an idea similar to reels will bring user back to the platform. I hope he is not too late to realize this.
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2. Metaverse Project – There was a time when no one thought computer will replace paper, no one thought that instead of reading you will be listening to a book, instead of going to bank you will be doing all transactions using your phone, no one thought that there will be something called social media and citizen journalists. All these happened due to great visionaries who were able to see an alternate world when people thought that they were crazy. Mark Zuckerberg’s alternate world in the making, is the Metaverse. Mark wanted to transition his platform to a virtual reality world where he envisions to take user’s engagement level to a new dimension. Whether or not he is able to fulfil his vision is to be seen but this metaverse project is the 2nd factor on this list. For Mark Metaverse can be a dream project but to the investors Metaverse is an experiment which gone wrong might harm their money. The funding of Metaverse project meant, increase of investment & decrease in profit for Meta. According to a report by Euro news, for this project alone Meta expanded workforce by 23% & invested over $10 billion in labs & augmented reality technology in 2021 which resulted in sharp profit decline. So this muddy water will not clear up till the 2nd half of 2022. All eyes will be on progress of this project.
3. Slowing Markets – Facebook’s major market region which is USA has reached saturation and data reveals that it is losing users fast in US. Facebook also have been losing users in Africa and Latin America pretty fast. Growth in India is slowing down too due to prepaid data price hike by Indian telecom players. In November, leading telecom players Bharti Airtel, Reliance Jio and Vodafone Idea had announced a hike in prepaid tariff rates by up to 25 percent. This has hit Facebook’s overall growth In India during that quarter. On top of that India’s start-up ventures under AtmaNirbhar Bharat initiative ( Self -Reliant ) by PM Modi is not a great news for Facebook. The indigenous platform Koo already has taken on Twitter India and is growing rapidly, so soon we might see a Facebook alternative for Indian users. All these does not sound good for Facebook, so lot of analysts are saying that Facebook will now have to expand to new regions and I agree to that.
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4. IOS Rule Update – The latest privacy changes done by Apple on their Phones has hit Fakebook’s advertising model very hard. Apple’s new IOS rule limits customer tracking . Meta’s COO Sheryl Sandberg said that adjusting to this app tracking changes will take time. This small change done by Apple to secure Customer Privacy has such a massive impact on Meta that Facebook CFO David Wehner was found commenting last week that this new IOS Rule will make Meta lose more than $10 billion in sales.
Bottomline is Facebook is going through an existential crisis now and all eyes are now on the Leadership team on how they turn things around. Your shareholders are dumping you, your customers are leaving you so unless Facebook has spent all these years building a strong culture and looking after their employees well, very soon employees will also start jumping the sinking boat. For a curious analyst and leadership student like me this is such a great story. I will be closely tracking this story. If Mark Zuckerberg can pull off Metaverse from here then his name will be taken with great respect by current and future leaders and what a case study will that be. So we will have to wait and watch whether Facebook goes down or it fights it’s way up and back to the throne.
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