[Meta Shock] While Chasing Metaverse Daydreams, Users Lost to TikTok Rising with Short-Form Content

Why Did Meta Platforms Plummet?

Mark Zuckerberg, CEO of Meta Platforms [Image source=Reuters Yonhap News]

[Asia Economy Reporter Jeong Hyunjin] "We are facing unprecedented levels of competition. Please focus on video products."

On the 3rd (local time), when Meta Platforms, the parent company of Facebook, saw its market capitalization vanish by $251.3 billion (approximately 301.8 trillion KRW) in a single day, CEO Mark Zuckerberg gave this order to his employees. His bloodshot eyes reflected the sense of crisis as the largest single-day market cap loss in U.S. history was recorded. Due to the stock price plunge that day, Zuckerberg's personal wealth also evaporated by $31 billion in just one day.

The reason Meta's stock plummeted 26.4% in one day was that the earnings report released the previous day triggered market warning signals about future growth potential. Although the company changed its name from Facebook to Meta last October and declared its transition into a metaverse (extended virtual world) company, Facebook?the foundation of its current business?has started losing users to the powerful competitor TikTok, and future revenue sources are still only investments without clear results.

'Existential Threat' from TikTok

According to Bloomberg and others, the main reason Meta faltered so much that day was the shaky user base of its core business, Facebook. The key to social networking services (SNS) is the network effect, which attracts more people. Meta announced in its earnings report that daily active users (DAU) decreased year-over-year for the first time ever. CNBC reported that Facebook's DAU in Q4 last year was 1.93 billion, slightly down from the same period the previous year. In recent years, SNS platforms focusing on video content such as TikTok and YouTube have gained attention, leading to a gradual decline in Facebook users.

Another factor holding Meta back is that most people worldwide already have Facebook accounts. If acquiring new customers on SNS is difficult, expanding content creation by existing users is necessary, but currently, TikTok?the biggest competitor according to Zuckerberg?is growing even faster. In response, Meta is boosting Instagram’s short video sharing service, Reels. Zuckerberg said, "Although advertising revenue is low, we will invest to expand (users)."

Metaverse Still a Pipe Dream

Another factor dragging Meta’s stock down is that its existing revenue source, advertising income, has been hit, and diversification of revenue is facing difficulties. Meta stated in its earnings report that changes in Apple’s privacy policies are expected to cause a $10 billion loss this year. Apple changed its policy last year so that app developers can collect user data only if users allow it, and Meta said, "It will take time to adapt to these changes." Inflation and supply chain issues are also pressuring advertisers.

[Image source=Reuters Yonhap News]

Additionally, Meta has recently made investments seeking new revenue streams, including the metaverse, but it is difficult to expect profits within a few years. In fact, Meta revealed in its earnings report that Reality Labs, responsible for the metaverse business, recorded a $10 billion loss last year alone and expects losses to increase with further investment. CNBC also reported that Meta executives have said it could take 15 years to realize their vision.

Meta’s supported virtual asset project Diem recently announced its withdrawal. Originally called Libra and first unveiled in June 2019, the project failed to clear the hurdles of U.S. regulators and is set to sell its technology assets to Silvergate Capital.

Rich Greenfield, partner at consulting firm LightShed, said, "Facebook has no choice but to respond to the existential threat posed by TikTok," adding, "Facebook is under pressure to deliver something while it cannot produce anything until the investment pays off in 10 years."

This content was produced with the assistance of AI translation services.