introduction image

Picture by: Shubham Dhage / unsplash Shubham Dhage / unsplash

Not metaverse, but Apple’s privacy policy change drove Facebook’s devaluation

The sudden crash Facebook experienced at NASDAQ results from the skewed relationship between hardware and software providers.

Article link copied.

Facebook, now rebranded as Meta Platforms, is known (and probably hated) by many. Despite having over 2.8 billion daily active users across its family of platforms – Instagram, WhatsApp, Messenger, and Facebook – Meta has one of the worst public perceptions among the large tech stocks. From the Cambridge Analytica data scandal to its role in Myanmar’s genocide, Mark Zuckerberg has been seen testifying before Congress on numerous occasions.

Despite being riddled in controversy, however, Facebook as a business has performed incredibly well over time. Its revenue has doubled since 2018 to $117.4 billion, and its earnings have grown at a rapid rate (especially given Facebook’s large size) to $39.7 billion. During the COVID-19 outbreak, with many people locked indoors, many have become much more active on social media to connect with their friends and relatives. Since the start of the pandemic, Facebook’s platforms have gained over 550 million users. Its stock price had increased over 3-fold, and Zuckerberg has added tens of billions of dollars to his net worth. Things were going very well.

In October 2021, Facebook released a huge change to its business – it would now use a substantial portion of the cash generated by the social media business to develop “metaverse.”

The metaverse is supposed to be a virtual reality world where we can work, play games, interact with friends, and visit places around the world from the comfort of our homes. The closest thing to the new world, I guess, could be seen in the movie adaptation of Ernest Cline’s Ready Player One, in which humanity lived in a virtual reality called Oasis.

Mark Zuckerberg essentially envisions that the internet, and our lives, will revolve around virtual reality. The announcement received mixed news, as the development of the metaverse would be incredibly capital-intensive, taking cash away from the social media platforms where it could be used to further grow the current business.

Some argue that the implementation of the metaverse reflects Zuckerberg’s lack of confidence in the existing social media business. Although this could perhaps be true, Facebook has shown slowing growth over the past years. The user base hasn’t grown much, and profit growth has mainly been from price increases on Facebook’s ads. Hence, Facebook also likely faced a lot of pressure from investors to expand and find new revenue streams. However, the root cause of the decision was (likely) Zuckerberg’s belief that the Metaverse is the future of the internet.

Fallout of the pandemic is the first time Gen Z experiences inflation

By Natasha Banga

On February 3rd, however, Facebook’s stock price on NASDAQ declined 26% – the biggest one-day drop in its history – after management released an updated forecast on its top and bottom line. Since then, Facebook has further declined to around $206 from its previous high of $380 – a decline of 46%. Essentially, almost half of Facebook’s value has been erased within weeks. What has caused such a rapid decline?

Although many point towards the metaverse, the core reason for the decline lies in the privacy change enacted by Apple. Tim Cook, the CEO of Apple, and his team in May of last year, decided they wanted to better ensure the privacy of Apple users. They implemented a change that would make it significantly harder for Facebook’s platforms to track users and ad-target them.

Some say this change was specifically targeted at Facebook to hurt its business (Facebook generates almost 100% of its revenue from ads). Whatever the case, Facebook’s management has estimated from its February earnings that the policy change would cost the business upwards of $10 billion dollars in lost revenue. As Facebook’s ads have now become less effective at targeting users, companies are no longer willing to pay as much for the company’s services.

A decline of $10 billion in revenue is likely to fully trickle down to the bottom line, meaning Facebook’s earnings are also likely to drop by $10 billion which, given that Facebook currently earns around $39.7 billion, is a decrease of around 25%.

The sudden crash represents the skewed relationship between Apple and alternative platforms like Facebook and Tik Tok. iPhone users are crucial to social media platforms, and generate the majority of their revenue. Hence, Apple is in a position of power, and can largely dictate how these platforms operate/track users.

Despite all of the controversy and the collapse in its stock, Facebook remains (intrinsically) a strong business. Few social media platforms offer the reach and level of insights that products like Instagram and Facebook do. All platforms are, essentially, competing for the same marketing/ad capital. Whether it is billboards, brochures, search engines, or platforms like Facebook, the money goes to whoever can offer the highest return on capital invested.

Despite the Apple policy change, the shift to the metaverse, and a worsening public image, Facebook will – for better or for worse – remain a major player in its industry and continue to grow going forward.

Written by:

author_bio

Ilya Kan

Fiction & Poetry Section Editor

Kazakhstan / United States

Co-founder of Harbingers' Magazine

Born in 2004, Ilya Kan is a Kazakh national of Korean origins, currently studying in the United States. He is fluent in Russian and English, and has some command of Kazakh. 

economics