Dusseldorf The past quarterly report from Meta Platforms at the beginning of February went down in stock market history. The Facebook parent company reported slower revenue growth, missed profit targets and active users fell for the first time in its 18-year history.
Investors were shocked, Meta’s stock market value fell by $ 230 billion in one day – an unprecedented drop in prices. Since then, the shares have continued to fall, with the market cap falling by another $120 billion.
Analysts and shareholders are therefore eagerly awaiting the figures for the first three months of the year, which Meta will publish on Wednesday after the US stock market closes. “It hasn’t gotten any better,” said Brad Erickson of RBC Capital, who expects another “difficult quarter”.
The stakes are high for founder Mark Zuckerberg and his company, which is still worth a good half a trillion dollars in the stock market. Analysts expect an average turnover of 28.3 billion dollars, around eight percent more than in the same quarter last year.
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But does the meta work? Doubts are appropriate: The important advertising business is weakening due to the Ukraine war, inflation and stricter data protection regulations, both at Apple and in the EU. “Although everyone is moving their advertising to digital formats, Meta is having a difficult year,” says Martin Garner, COO of advertising consultancy CCS.
User numbers continue to fall
As in the previous quarter, the number of users could fall again. With the ban on Instagram and Facebook in Russia alone, Meta is losing around three million daily active users – around 1.4 percent of the total. That might not seem like much at first glance, but even a slight decline in February was enough to spook shareholders.
Meta is also losing its attractiveness, especially among younger users. They are more concerned with the Tiktok video channel than with Instagram or even Facebook. “The number of users will be declining, also because economies around the world are growing less rapidly because the cost of living is rising,” adds Garner.
>> Read also: Zuckerberg’s search for new sources of income: Meta is apparently working on its own digital currency
The new business field Metaverse will not help much there. Meta invested ten billion dollars in the merging of real and digital worlds in the past year alone. However, the project is still in its infancy: Meta’s virtual reality game “Horizon Worlds” has only 300,000 users so far.
“Meta is investing enormous amounts of money into the Metaverse – it’s a big bet on the future of the internet,” says Garner. “Development costs are large while sales remain minimal for the foreseeable future.”
Quest 2 as a beacon of hope
However, there are increasing signs that the Metaverse could actually be a growth driver for the group one day. The focus is on Quest 2, which was launched a few months ago.
The virtual reality glasses are cheaper, lighter and more powerful than their predecessors. Meta allows developers to release games that are only based on Quest 2 – so they don’t have to be compatible with the weaker previous model. Titles like “Red Matter 2” or “Bonelab” therefore set new standards in terms of graphics quality
“Quest 2 could be a spark for the Metaverse, like the iPhone spawned its own app development ecosystem and app store,” said Tibor Merey, partner at Boston Consulting.
In a new study, BCG puts the market potential of the Metaverse at up to $400 billion in 2025, of which $47 billion is attributable to virtual reality (VR) and augmented reality (AR). “VR and AR are growing together, soon you won’t be able to tell the difference anymore,” says Merey.
Weak advertising business
Until then, Meta has to deal with a difficult core business. This is doing poorly for a number of reasons: Advertisers are holding back because of the Ukraine war and inflation, especially in Europe. The new EU directives of the “Digital Services Act” are also likely to dampen future sales there. And as in the previous quarter, Apple is a problem for the social network with its tightened data protection regulations.
Analyst Brad Erickson recently surveyed advertising agencies that represent smaller advertisers. Many small to medium-sized companies were therefore considering placing their digital advertising on new channels for the first time. Erickson then lowered his price target, as did his colleague Jason Helfstein from Oppenheimer. Meta is obviously facing tough times.
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