Will Facebook (FB) release a bitter new pill on April 27?
The question is on everyone's lips after a disastrous end-of-year 2021 performance. Investor nervousness is currently palpable after Alphabet (GOOGL), Google's parent company, painted a gloomy overall picture for the ad market facing tech.
Alphabet has just announced that YouTube's ad revenues increased 14.4% to $6.87 billion in the first quarter compared to the 2021 first quarter.
But it is significantly lower than the $7.21 billion that were anticipated by analysts.
These figures suggest that the outlook for advertising revenue is no longer as rosy as it has been for the past two years, when online advertising spending skyrocketed due to the explosion of e-commerce.
What About Facebook?
One wonders since the social media giant is the second largest player in terms of market share when it comes to online advertising after Google.
Mark Zuckerberg and his entourage face a lot of questions that reveal anxiety about the social media giant's short-term performance.
Facebook is surrounded by the difficulties that the group must navigate at the same time as it tries to convince investors of its new El Dorado that would be the metaverse.
Facebook shares have fallen more than 44.2% since the company changed its name to Meta Platforms on October 28. Since Dec. 31, these stocks have fallen 47.4%.
Will Ad Revenue Hold Up Against Apple's Changes?
Online advertising is the bread and butter of Facebook. If the group continues to share this cake with Google and Amazon (AMZN), there is a new entrant who is very threatening TikTok.
The emergence and success of the short video app has not escaped advertisers who have flocked it in the hope of attracting the new generation of consumers who are Gen Z and TikTok fans.
Facebook has launched Reels, a kind of copycat of TikTok, on Instagram, but it's unclear whether Reels allows Facebook to limit advertiser departures to TikTok.
Then there are the first worrying signs suggesting a slowdown in Europe following the Russian invasion of Ukraine. Worries about growth are mounting and supply chains remain snarled while inflation is high.
In addition, the impact of the halt of Facebook's activities in Russia is yet to be determined, especially since it is difficult to say when the group will be able to return to the country after a showdown with the Russian authorities.
Facebook's biggest challenge, however, remains Apple (AAPL). How does the company plan to respond to Apple's change in privacy policy?
Since last year, new versions of iOS and iPadOS have required app developers to explicitly ask for permission to track user behavior on Apple's App Store and the Internet.
This is a serious blow to Facebook, which has based its economic model on a technology designed to track the activity of its users in order to offer them targeted advertising.
The “App Tracking Transparency” policy, which makes it harder for Meta to use information on consumer activity, will cut its revenue by about $10 billion this year, or 9% of the 2021 total.
“A key focus on Meta remains the company’s ability to develop, test and deploy a post privacy ad attribution model, and our checks suggest that this will more likely be a 2023 development,” Evercore ISI analyst Mark Mahaney said in a research note wrote.
Everything Leads to The Metaverse
Then there is the metaverse.
It is a virtual world in which we are called upon to interact via avatars and with the help of virtual reality helmets, special glasses, the help of augmented reality and other technological tools doped by artificial intelligence.
Admittedly, it is still too early to really expect convincing results, but Mark Zuckerberg and his company must give a slightly clearer roadmap.
Reality Labs, which includes augmented- and virtual-reality-related consumer hardware, software and content, is a sink for the company.
This division lost $10.2 billion in 2021, more than double the operating losses recorded in 2020 of $4.62 billion. In 2019, the operating loss was $4.5 billion.
Investors should expect losses in the coming months to continue to widen as they did in the fourth quarter, when the division lost $3.3 billion, 26% more than it did in the quarter ended in September.
In early April, the company said it is looking to enable creators to monetize what they're building in Horizon Worlds, their social metaverse platform for Quest VR headsets.
It is rolling out a test with a handful of creators that will let them sell virtual items and effects within their worlds. Meta is planning to take an overall cut of up to 47.5% on the sale of digital assets on Horizon Worlds.
The company will also open its first physical store dedicated to the metaverse on May 9 in Burlingame, Calif., in order to revive the buzz around the metaverse which is fading.
"In the Meta Store, you’ll be able to get hands-on experience with all our hardware products," the firm explained.
"Once people experience the technology, they can gain a better appreciation for it. If we did our job right, people should leave and tell their friends, ‘You’ve got to go check out the Meta Store'," said Martin Gilliard, Head of Meta Store.
The company plans to release a high-end virtual-reality headset and would continue to develop Project Nazare, which is Meta's first fully augmented reality glasses.
