Shares in Meta Platforms Inc (NASDAQ:FB), the owner of Facebook, Instagram and Oculus, plummeted 26% in opening trades in New York today after user numbers were revealed to have declined for the first time in its 18-year history.
The stock plunge resulted in a US$200bn hit to its valuation, dragging the market cap below the US$ trillion level reach last summer to below US$900bn.
With the Facebook social media platform facing increasing competition from rivals like TikTok and YouTube, global daily active users fell to 1.929bn in the fourth quarter to end-December 2021 from 1.93bn in the previous three months, although the number rose by 5% compared with a year ago.
Earnings per share were US$3.67 in the fourth quarter, down from US$3.88 in the same period last year, and below the US$3.84 expected by the market.
Total revenue, most of which comes from ad revenue, increased by 20% to US$33.6bn in the final quarter of last year, beating the market consensus of US$33.4bn.
However, growth is set to slow in the first quarter of 2022, with the group forecasting total revenue in the range of US$27bn-US$29bn for the first three months, a rise of 3%-11%, and below market hopes for just over US$30bn.
Ad impressions increased by 13% year-on-year in the fourth quarter and the average price per ad rose by 6%.
The group said ad growth in the current quarter would be impacted by increased competition for people's time and a shift towards video apps like Reels, along with further pressure from Apple Inc's IDFA privacy changes, which enable users to prevent apps from tracking their online activity for ads.
Meta's chief financial officer, Dave Wehner, told analysts on a conference call that the impact of Apple's privacy changes could be "in the order of $10bn" for 2022.
Meta founder and chief executive Mark Zuckerberg said competition for users was one factor impacting the business, mentioning short video app TikTok by name and emphasizing Meta's commitment to providing services for young adults.
Other challenges include cost inflation, supply chain disruptions and foreign currency headwinds, Meta said.
"We had a solid quarter as people turned to our products to stay connected and businesses continued to use our services to grow," said Zuckerberg.
"I'm encouraged by the progress we made this past year in a number of important growth areas like Reels, commerce, and virtual reality, and we'll continue investing in these and other key priorities in 2022 as we work towards building the metaverse."
Metaverse investments grew 60% in 2021 to US$12.5bn and management plans to increase this meaningfully in 2022
Costs rose by 38% to US$21bn in the final quarter, driven by rising research and development and marketing and sales, while last year the group headcount grew 23% to 71,970.
Meta amended its forecast total expenses for the current year to US$90bn-US$95bn from US$91bn-US$97bn previously, driven by investments in technical and product talent and infrastructure-related costs.
“Meta CEO Mark Zuckerberg may be keen to coax the world into an alternate reality, but disappointing fourth quarter results were quick to burst his metaverse bubble," commented Laura Hoy, equity analyst at Hargreaves Lansdown.
"Investors were understandably troubled by the results, made worse by news that the current quarter was coming with a host of headwinds—not least of which being uncertainty about advertising budgets.
"Ultimately investors give the social media stalwart a thumbs down and that negative sentiment was only amplified by existing tech-sector jitters. Facebook’s massive size and impressive reach coupled with a rock-solid balance sheet means there’s potential in the longer term, but the next year looks like it will be a bumpy, and expensive, ride,” she said.
Analysts at broker Wedbush said the Q1 guidance was well below expectations and it "is now undeniable" how much of an impact Apple's IDFA privacy changes are having for Facebook.
Facebook's strengths in targeting and measurement "are under pressure with the loss of signal driven by the privacy changes", with Meta bosses saying they expect the impacts to get worse before they get better, with "a multi-year development" before the platform can rebuild its ad optimization systems to be as effective as the IDFA.
Wedbush also noted the "dramatic" dichotomy between Google's results and strength in retail versus Facebook" and said management admitting to the effects of competition from TikTok was "somewhat unprecedented".
The shares tumbled 26% to US$240.