The Tribune

ACTIVTRADES WEEKLY

By CARL C. ILLING

www.activtrades.bs

FACEBOOK’S parent company, Meta (FB), has not had a bad year. Not every company can claim to have increased its sales by 37 percent in one year. The social networks, Facebook and Instagram, as well as the messenger, Whatsapp, generated almost $118bn following $86bn in the previous year. A good $29bn of that remains as profit.

Nevertheless, Meta’s share price literally crashed after business figures for the past year were announced - a minus of 22 percent was on the tickers in after-hours trading. Last quarter’s net income fell 8 percent to $10.3bn due to higher costs. Earnings per share of $3.67 were 17 cents lower than expected.

Meta’s weak numbers were even more surprising given that its competitor, Google (GOOGL), had reported stellar results just a day earlier. Its parent holding firm, Alphabet, reported a rapid increase in sales and profits, and its share price rose significantly on Wednesday.

One reason Meta cited for its cautious forecast was Apple’s controversial data rules changes. Meta’s chief financial officer said the company estimates the associated negative revenue impact at $10bn, and he described it as a “significant headwind”. Meta’s total revenue for 2021 was $117.9bn, so the expected impact of the Apple effect is significant.

But the main reason for the crash has to do with one name: Tiktok. The network with the popular short videos is affecting the Facebook group, so much so that Mark Zuckerberg names the Chinese app as the main competitor. “With Tiktok, we are facing a competitor that is much larger, so it will take a while before we get catch up,” he told analysts. There is the segment of short videos that Tiktok practically invented, and which Facebook counters with its own Reels competition.

The competition in the short videos is crucial, according to Mr Zuckerberg. “There’s this long-term trend,” says the Facebook boss. “In the early 2000s, text was the primary way to share and consume content online. Then we got cameras on our phones, and photos became the main thing. And now that mobile networks are getting better and better, video is becoming the most important medium. It’s much more natural and engaging.”

Although Facebook is represented in the video medium – videos can be posted and viewed on all the group’s platforms – it is not the medium that users primarily associate with the Facebook platforms. These are Tiktok or Google’s competitor, Youtube. This gets overlooked in the dispute between Facebook and the Chinese app, although it can be described as the market leader.

In January 2022, mobile users spent an average of 23.7 hours on YouTube for the month, while they spent just 19.6 hours on Facebook and Tiktok. However, Facebook is, of course, not the only platform of the Meta group. Whatsapp (18.6 hours per month), Instagram (11.2 hours) and Facebook messenger (3 hours) have to be included in the calculation.

The growth rate speaks for the Chinese platform. Since the beginning of 2018, Tiktok has grown its user count 17-fold, reaching the magical mark of one billion users who are active at least once a month.

The sales development also differs significantly: Tiktok’s parent company, Bytedance, was able to increase its revenues by 70 percent last year (to $58bn). Meta is only at the 37 percent mentioned at the beginning. In addition, there are significantly more younger users on Tiktok. The next generation of young teenagers between 12-19 years-old clearly prefers the Chinese app.

However, you must keep in mind that Tiktok is still much smaller than Facebook. This applies not only to sales ($58bn versus. $118 bn), but also to the number of users. Some 3.59bn people recently accessed all platforms of the Meta group at least once a month. With Tiktok it was just 1bn monthly active users. When Zuckerberg says Tiktok is “much bigger”, that’s strictly for video.

Zuckerberg believes he has another ace up his sleeve. In his opinion, the development of popular content does not stop with videos. “I believe that an even more immersive format around virtual and augmented reality will be the next step after video,” he said at the analyst conference. “That’s why we’re so heavily invested there.”

He is alluding to the “Metaverse”, and that recently even prompted the company to change its name.

Zuckerberg’s idea is that VR or AR glasses could become the primary means of accessing the Internet, replacing smart phones. Should the technology catch on as predicted, the Meta group would be well positioned with Oculus, its manufacturer of VR technology.

The savvy investor should monitor Meta’s share price over the next couple of months. Is it a buying opportunity or time to say goodbye to Facebook?