Before anyone gets all hot under the collar, there is of course an inaccuracy in the heading of this article. There is no ‘Facebook’ share price anymore. The holding company’s name was changed and rebranded as Meta Platforms, with Facebook, Instagram and WhatsApp divisions under that umbrella.
Social media applications, or rather the advertising revenues generated by them, are still very much Meta’s bread and butter. Last year accounted for 97.4% of the $39.3 billion in revenue the group generated. These digital advertising revenues are still climbing, leaping from $29.1 billion in 2021, as the international pie gets bigger.
But Facebook and Instagram are also losing market share with the new Chinese-owned pretender TikTok, a video-blogging platform hugely popular with Gen Z, proving a particular threat. Facebook’s user demographic has aged with the platform and is increasingly made up of the now middle-aged older millennials and the generations above them they introduced to it.
I’m sure the personal observation of many of you reading this will be the same as mine, a man in his early forties. I personally still log on for a scroll of family and friends’ posts, and professional interest groups I am a member of, roughly once a day. I justify it to myself as a nice easy way to keep up with how everyone is doing, especially living abroad as I do.
But the number of my family and friends still regularly posting has fallen off a cliff in the past few years. I’ve unfollowed the annoying regular posters and, if truth be told, have a slightly patronising attitude to the benign enthusiasts.
Especially those from older demographics, which now seem to dominate, I once very reluctantly (very, very reluctantly in the case of my mother) accepted friend requests from – “aww, that’s sweet, still enthusiastically posting on Facebook!”
Once a regular poster, as the often cringe-inducing “memories” I’m served testify to, I very rarely post anything on Facebook now. I might occasionally try a shout-out to find someone for 6-a-side football but it’s become a less successful strategy. Possibly because the most exercise indulged in by many of the people I know is now a “good walk”. The more active go jogging or cycling or even climbing but now rule contact sports out for fear of injury or embarrassment at the level of execution they fear they will have slumped to.
I don’t see that trend reversing so that will be another of my few remaining motivations to be an active user gone. I announced the birth of my second child on Facebook a couple of months ago, mainly because my mother said I should so that my aunties and people who go to her church could see a couple of photos and make nice comments.
When will I post again? No idea really. I might slap a few pics up at Christmas when I’m at home visiting with the family so the dopamine hit of “likes” can take the edge off sitting around having cups of tea and coffee on various sofas for a week.
But I do still use Messenger and WhatsApp regularly, though I don’t think I’ve ever clicked on an ad in either. Over the years, I have occasionally made purchases as a result of Facebook ads but think the last time was at least a year ago, probably more. I’ve never had an Instagram account but I know my two most fashionable sisters do and still use them, though far less frequently than they did.
Facebook, Instagram and WhatsApp are still money-making machines
If I were to make a call on the future prospects of Facebook, Instagram and WhatsApp based purely on my own personal experience, it would be that Meta’s social media platforms are dying a slow death. I certainly wouldn’t buy shares in the company and I would sell any I still owned.
But even if I suspect my personal experience as a user of Meta platforms is far from uncommon for my demographic, it is not the whole story by a long way. The company’s social media-generated ad revenues have risen strongly year-on-year, surging from $85.96 billion in 2020 to $117.92 billion in 2021.
Source: Business of Apps
However, there have been warning signs flashing for at least a couple of years now. While user numbers have continued to grow in developing economies as more people have come on line, it has dropped off sharply in the Meta’s most mature markets like North America and the UK.
Source: Business of Apps
The Covid-19 pandemic reversed the underlying trend but with that effect proving temporary and fading away over 2022, results from the first two quarters of the year have been troubling.
In Q2 2022, Facebook had 2,934 million monthly active users, down from 2,936 million in the previous quarter. Meanwhile, the number of daily active users climbed from 1,960 million in Q1 2022 to 1,968 million in the three months to the end of June 2022. But a glance at year-over-year growth shows both monthly and daily active users follow a similar downward trend and are now in the low single digits.
Source: Statista.com
It also looks very much like Meta is hiding skeletons in the closet when it comes to engagement. In 2016, as part of its regular quarterly results format, Meta, then Facebook, reported users were spending more than 50 minutes per day, on average, using Facebook, Instagram and Messenger. It hasn’t reported any official stats on this ever since, which raises the suspicion that is because the metric has been in steady decline and Meta’s platforms have been losing ground.
Solid daily and monthly user numbers increasingly feel like a smokescreen masking the unpleasant reality. Meta posted its first ever revenue drop over the second quarter of this year. The company suffered a 36% decline in net income and profit declined from $10.4 billion in Q2 2021 to $6.7 billion for its latest quarterly earnings. Total revenue for the quarter dropped 1% to $28.8 billion.
Meta still makes a lot of money and is a close second to Google when it comes to its share of international ad spend. But the Google search engine, YouTube, the Android operating system and the other major sources of revenue for Alphabet continue to grow their number of active users and have no obvious competition to threaten their market share in the foreseeable future. Meta’s core products and revenue streams, meanwhile, appear to be in terminal decline.
The Meta Platforms share price has plunged by over 60% this year as investors have grown increasingly concerned at the group’s future prospects. CEO and co-founder Mark Zuckerberg gives the impression of being relatively unconcerned. Facebook, Instagram and WhatsApp are now, he appears to imply, little more than cash cows that need to be milked for a while yet to fund the company’s transition into a leader of the “metaverse” – the loosely defined virtual world he sees as the future of the internet.
That’s where the real money will be and Meta’s proposed position as market leading innovator and founding member of the metaverse will see it return to growth in a way that will far surpass the measly $1 trillion valuation it peaked at late last year.
The problem is, nobody really knows what the metaverse will look like in a decade or what Meta’s position and role in it will turn out to be. An investment in the company today doesn’t seem to make a lot of sense without strong confidence in Zuckerberg realising his metaverse vision, whatever that turns out to be.
Yes, the Meta share price is a lot cheaper than it was recently and could be seen as a bargain at current multiples in the context of still impressive revenues. But share prices don’t go up when a company steadily loses market share and its revenue growth, or revenue, is in decline. Especially if that decline looks terminal.
Nobody really expects Facebook, Instagram and WhatsApp to muster a turnaround and reinforce their positions as dominant in the broader social media landscape, especially to the extent they once were. Which means the company’s future genuinely is tightly coupled to the future metaverse it is now named for. And specifically, Meta establishing itself as the dominant player in that theoretical space.
Which sounds a little like investing in a SPAC at a premium price because it has said it will buy an EV company set to become a dominant player in that new market. And we’ve all seen how that trend has worked out over the past year.
None of this is to say the metaverse won’t be a huge new market in 10-20 years from now. But it’s definitely also possible it won’t be, or at least not in the way or to the extent Zuckerberg envisions. Or that Meta will succeed in its ambition of dominating it like Facebook and Instagram did social media until recently.
It strikes me as a risky bet. And certainly not one I would be willing to make until I see a lot more evidence that Zuckerberg is likely to realise his metaverse ambitions and successfully reinvent and reinvigorate Meta the way the iPod and then iPhone reinvented and reinvigorated Apple a couple of decades ago.
