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Meta Shares Slump 20 Percent After Earnings Report, Number of Facebook Users Declines for First Time in History

Jonathan Walker
Jonathan loves talking politics, economics and philosophy. He carries unique perspectives on everything making him a rather odd mix of liberal-conservative with a streak of independent Austrian thought.
Published: February 4, 2022
Meta shares declined after reporting Q4 earnings and a fall in the number of Facebook daily users. (Image: pixabay / CC0 1.0)

On Feb. 2, shares of Facebook owner Meta fell by 20 percent after the social media platform’s quarterly earnings failed to meet market expectations. As a result of the share market sell-off, Meta’s market value declined by roughly $200 billion. Meta, which peaked at around $327 on Feb. 2, is currently trading at around $245.

For the fourth quarter of 2021, Meta reported a revenue of $33.7 billion and an earnings per share (EPS) of $3.67. According to a CNBC report, analysts were expecting Meta’s Q4 revenues to be around $33.4 billion and the EPS to be around $3.84. The company also projected lower earnings for the first quarter of 2022, possibly in the range of $27 to $29 billion. This will be lower than analyst expectations of $30.15 billion according to Refinitiv.

Meta had earlier warned that its ad business faced “significant uncertainty” during the last quarter of 2021. Meta is the second-largest online ad platform in the world, just behind Google. Apple’s new privacy policy had a big impact on Meta. 

The policy gives users the ability to prevent apps from tracking their online activity for ad purposes. This made it harder for advertisers to know their market and develop products. According to Dave Wehner, the chief financial officer of Meta, Apple’s privacy changes could result in a loss of billions of dollars. 

“We believe the impact of iOS overall as a headwind on our business in 2022 is on the order of $10 billion, so it’s a pretty significant headwind for our business… We believe those restrictions from Apple are designed in a way to carve out browsers from the tracking Apple requires for app. So what that means is that search ads could have access to far more third-party data, for measurement and optimization purposes, than app-based ad platforms like ours,” Wehner stated.

Facebook’s first membership decline

Facebook’s number of daily active users also fell for the first time since the company was founded back in 2004. Q4 global daily users dropped to 1.929 billion from the previous quarter’s 1.93 billion. The decline in the number of users was driven by Latin America and Africa.

Meta’s Reality Labs, the company’s virtual reality segment, posted a net loss of $10 billion for 2021. Meta CEO Mark Zuckerberg had earlier predicted that the company’s operating profit for last year would be lower by $10 billion due to investment in the metaverse, which is touted to be the next version of the internet. 

However, Zuckerberg had also warned that these billions of dollars worth of investments will not bring in profits “any time in the near future.” In 2020, Reality Labs had posted a net loss of $6.6 billion.

“Investors looking at Meta are starting to realize that buying their stock is no longer mostly an investment into their ad platform… Investing in Meta now looks more like a commitment that you believe that the metaverse will replace much of the internet consumers’ experience today,” Flynn Zaiger, CEO of social media agency Online Optimism, said to Money Control.

According to ABI Research analyst Eric Abbruzzese, shareholders will be hesitant to buy Meta shares if the company plans on pouring in billions upfront without any expected return for years. Despite Reality Labs posting big losses and a drop in the firm’s share price, Zuckerberg is hopeful of the company’s future.

“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,” the Meta CEO said in an earnings release.