(BFM Bourse) – The social media giant was forced this week to cut 13% of its workforce, weighed down by soaring costs. The sluggishness of advertising spending and nagging problems related to measures taken by Apple caused the fall in its share price.
Undermined by rising costs and crumbling revenues, Meta had to resolve to drastically cut its workforce. Facebook’s parent company announced this week the elimination of 13% of its workforce, a total of 11,000 jobs. Hiring is also frozen until March 2023.
“At the onset of Covid, the world quickly got online and the rise of e-commerce led to outsized revenue growth. Many people predicted that it would be an acceleration permanent that would continue even after the end of the pandemic. I did it too, and so I made the decision to significantly increase our investments,” said Mark Zuckerberg, Facebook’s CEO.
“Unfortunately, things didn’t go the way I expected. Not only did online commerce revert to earlier trends, but the macroeconomic downturn, increased competition and loss of advertising signal meant that our revenues have been much lower than I had expected. I was wrong, and I take responsibility for it, “continued the leader.
70% dive
The decision was expected as Meta saw its overall spending jump in the third quarter, 19% year on year, to $22.1 billion. Wall Street also appreciated the group’s announcement, with Meta shares rising 5.2% on Wednesday. But over the whole of 2022, the stock still lost nearly 67%*. Since the start of the year, the course of the action has looked like a long fall.
Two warning shots of more than 20% particularly shook the stock, in February and at the end of October, each time due to disappointing prospects and results. In the third quarter, the group notably saw its revenues fall by 4%, the second consecutive quarter of decline, while earnings per share proved to be below expectations. The main difficulty facing the group remains the slowdown in online advertising spending.
“It’s an ad market that’s in significant trouble. It’s definitely the first industry that gets hit when you’re going through a recession or an economic downturn like this,” said Angelo Zino, senior technology industry analyst at CFRA Research, quoted by S&P Global Market Intelligence.
Competition from other platforms, in particular from TikTok, owned by the Chinese group Bytedance, also weighs.
iOS in question
These difficulties have also affected other social networks such as Snap Inc, which has lost nearly 76% since the start of the year, and Pinterest, which has fallen by nearly 35%. Conversely, Apple, obviously not or only slightly dependent on advertising, is holding up better, also benefiting from top-of-the-range products and therefore from demand that is less sensitive to the economic situation. The apple group thus limits its decline to 16.7% since the start of the year.
Meta, which in addition to Facebook owns Instagram and WhatsApp, is also suffering from privacy policy changes in iOS, Apple’s operating system, which occurred in 2021. These changes require all applications to obtain user approval. so that it is “tracked” (monitored by the application) which has made it more complicated to monetize the audience via targeted advertising. At the start of the year, Meta had estimated the loss of revenue due to these changes at around $10 billion over its entire 2022 financial year.
Added to this is the rise in interest rates by the Federal Reserve, which is particularly denting the valuations of technology groups, and the strength of the dollar which is reducing income earned abroad.
“I think a lot of tech companies had held on to hope that they could ride out the weak economy, but as we’ve seen over the earnings season, it’s going to be a long, cold winter for a lot of those. companies as we weather this economic storm,” said Dan Ives, senior equity research analyst at Wedbush Securities, as quoted by NBC.
An uncertain turn towards the metaverse
As CNBC points out, investors also seem skeptical of Meta’s turn towards the metaverse, this immersive virtual world supposed to allow innovative experiences for the general public. It is this major orientation that led the group to change its name to become “Meta”, in October 2021. The American company hopes to create a new immersive and disruptive space which would thus attract brands.
But for now, the metaverse has mainly resulted in significant cost increases for Mark Zuckerberg’s group. Reality Labs, the group’s division specializing in this area, saw its expenses reach $4 billion in the third quarter, up 24% due in particular to technological costs. Its operating loss widened to $3.7 billion from $2.6 billion a year earlier. Cumulatively, Reality Labs’ losses have reached $9.4 billion since the start of the year.
“We expect Reality Labs operating losses in 2023 to increase significantly year over year,” Meta also warned.
The market is not alone in being skeptical. Tim Cook, CEO of Apple (yes again Apple), was skeptical at the beginning of October about the possibilities offered by this immersive virtual space. He felt that Facebook was on the wrong track because “the general public doesn’t know what the metaverse is”.
Even at the level of Meta employees, mayonnaise is hard to take. According to an internal note revealed at the beginning of October by the specialized media The Verge, the teams in charge of the development of Horizon Worlds, the flagship of the group in the metaverse, do not use this virtual world a lot, which also suffers from bugs.
“Meta is in the midst of an identity crisis. The company has one foot in a risky long-term bet on the metaverse and the other foot unable to compete with TikTok,” commented Mike Proulx, research director at Forrester. , quoted by AFP.
He added: “Neither bodes well for Meta in the near term and more severe cost-cutting measures were inevitable as the company tries to regroup on the eve of a dismal 2023.” .
* Course stopped Friday at the end of the afternoon.
Julien Marion – ©2022 BFM Bourse
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