Facebook parent Meta Platforms has suffered a string of public challenges in the past year as regulators intensified their scrutiny of the company and Apple rolled out a privacy feature that crimped a key source of user data. But as Meta’s wobbly revenue outlook made clear late on Wednesday, the company is facing yet another threat to its business. The social media landscape seems to be rapidly shifting towards short-form video, a space dominated not by Facebook but by TikTok.
Meta warned in its earnings results that revenue for the current quarter would come in at about US$27-billion to $29-billion, well below analyst forecasts. Meta also reported that user numbers for the quarter ended in December had stagnated. The weak showing sent Meta’s shares plunging more than 20% in after-hours trading.
While investors were braced for signs of slowing user growth, they were taken aback by the extent to which the company expected to lose out on ad dollars as competitors such as TikTok gain ground. Meta’s Instagram platform has its own short-form video feature called Reels, but TikTok, owned by ByteDance, dominates the space for short user-generated videos. Meta is not only losing consumers to TikTok but also seeing lower revenue from ads destined for the shorter format on its own apps.
There have been signs for a while that Meta was grappling with how to deal with the TikTok threat and consumers’ evolving tastes. Last summer, Instagram chief Adam Mosseri said the platform planned to move beyond its emphasis on photo-sharing and embrace video, citing TikTok’s success. On the earnings call on Wednesday, CEO Mark Zuckerberg said the company was focusing on Instagram Reels due to TikTok’s rising popularity.
The growing competition from TikTok compounds the uncertainty surrounding Meta’s future. Zuckerberg has been adamant that the company’s long-term success depends on the metaverse, his vision of a virtual world where consumers can play, socialise and work. He is spending accordingly. Results released on Wednesday show Meta has lost more than $20-billion over the last three years on projects tied to the metaverse.
The massive financial commitment towards an idea that remains largely theoretical has created uncertainty about Meta’s trajectory. Yet many investors have been willing to accept the huge expenditures as long as they knew the core social media business would continue to pump out billions in advertising revenue. They have now learnt that the revenue stream might not be as dependable as they had thought. — (c) 2022 Bloomberg LP
