Facebook is difficult to reform to overcome the crisis

Facebook is difficult to reform to overcome the crisis

Unlike 2012, Facebook's bet on the metaverse this time is unlikely to help them improve revenue in the short term.

In 2012, before the IPO, Facebook was in big trouble. The company's revenue growth slowed, costs skyrocketed, and rivals gradually got ahead as it shifted to smartphones and other mobile devices.

However, in just two years, the company turned the tide. In the first 3 months of 2014, their revenue increased 72% compared to the same period last year. Profit also tripled after restructuring to follow the "mobile first" strategy, prioritizing mobile devices. This successful move became one of Facebook's legends, contributing greatly to its later dominance.

A decade later, Facebook, now known as Meta Platforms, finds itself in a similar situation. In the middle of last week, it announced last quarter profits fell, user growth slowed and the revenue outlook for this quarter was bleak. These news sparked the worst trading session in the company's history, causing the market capitalization to evaporate more than 200 billion USD.

Meta - the parent company of Facebook - recorded an unprecedented decrease in capitalization last week. Photo: Reuters

Meta - the parent company of Facebook - recorded an unprecedented decrease in capitalization last week. Photo: Reuters

CEO Mark Zuckerberg has positioned the company as a combination of virtual reality (VR) and augmented reality (AR), which he calls the metaverse. Zuckerberg thinks this breakthrough will help the company turn the situation like the previous mobile-first strategy. He even calls the metaverse the "successor of the mobile internet".

However, compared to 10 years ago, Zuckerberg's company now has a very important difference. While mobile technology was a burgeoning platform at the time of Facebook's shift, the current metaverse is still years away, or even never, at all.

In 2012, the world sold hundreds of millions of smartphones. But last year, virtual reality headsets (the stepping stone to the metaverse) sold only 9.4 million units, according to research firm IDC. VR and AR technologies are also in the early stages of development.

Meanwhile, Meta's business is under threat on many fronts. Their number of users is stagnation and aging. Core advertising is challenged as Apple makes many changes to the operating system. A series of other scandals caused this company to be noticed by the authorities, limiting its ability to grow through M&A.

When the real world is plagued with problems, Zuckerberg bets he can make a big shift in the virtual world. However, he himself admits that the future is uncertain. "While the direction is clear, the path ahead of us is not entirely defined," he said last week.

Not only that, this route is also very expensive. Meta's AR and VR businesses lost more than $10 billion last year.

"Meta is sacrificing its core business model to pursue its passion for the metaverse," said Rachel Jones, an analyst at data analytics firm GlobalData. "Betting big on the metaverse isn't such a bad thing. "This technology is going to be huge, creating a lot of opportunities. However, this process will probably take at least another 10 years."

Facebook bought virtual reality headset maker Oculus in 2014, saying its product has the potential to become a "new communication platform". However, this technology has so far progressed very slowly compared to the rapid popularity of mobile phones.

In fact, Angelo Zino, an analyst at CFRA Research, said that while Facebook is actively promoting its metaverse ambitions, its competitors have a much stronger foundation in making the transition to the technology. For example, Apple has the advantage in hardware, Roblox is stronger in software, or TikTok, Snap has a younger user base. Meanwhile, Facebook is now seen as a place where users keep in touch with older relatives, who are less likely to use VR or AR technology.

The fact that Apple updates changes with the iOS operating system can make it difficult for Meta to analyze user behavior for advertising. CFO Dave Wehner last week suggested that this could cost them $10 billion this year.

However, the lack of new users last quarter is a more worrisome trend in the longer term. They are competing with many other competitors, like TikTok, for users. "Once this number slows down, advertising partners will take notice," Zino analyzed.

This quarter, Meta forecasts revenue growth of 3% - 11%, much lower than 48% in the same period last year. This could be a sign that Facebook's advertising business is shrinking, Zino said.