Meta’s share price is a blood bath. Can it ever recover?
So it’s probably fair to say I built my business on Facebook.
Facebook – and what I’m talking about here is using Facebook advertising to reach customers – has never been the only feather in my bow, but for many years it was the biggest.
It dominated my market budget.
But things change.
And Facebook (or, “Meta” as the company is now known) is struggling. Actually it’s having a woeful time.
It’s stock price took another massive leg down last week. It’s share price has now lost 70% of its value in just ten months.
Feel the G-force on that dive!
If you bought Facebook stock in 2015, you’ve now lost money.
That’s astounding. It’s gone from market darling to lame little duck, almost over night.
And what’s killing it?
Ad revenue? (Ads are 98% of Meta’s revenue.)
And why is ad revenue collapsing?
Meta says its “the uncertain and volatile macroeconomic landscape.”
These are tough economic times…
Well, sort of. Inflation is up, and there are clouds gathering, but so far consumer spending in the US is holding up, and US GDP surprised to the upside in the September quarter.
Now, the truth of it is that Facebook is losing a war with another tech Titan.
Apple.
Apple introduced the App Tracking Transparency (ATT) policy earlier this year. You have to opt in if you want to allow apps to track your activity across other apps.
(Only 16% of iphone users opt in.)
For Facebook this was a key ingredient in their business model. This info let them offer highly specialised and targeted ads, which advertisers, like me, where willing to pay for.
Without that information, advertising becomes a lot more hit and miss. And hit and miss advertising is a lot less valuable. People are willing to pay a lot less for it.
A survey of e-commerce companies in the US found that almost half have cut their Facebook ad spend by 25%, at the same time as the cost of customer acquisition has gone up ten fold!
Ouch. (Trust me. Ouch!)
The old business model is just not working.
So look, everyone, including Meta, want to overlay a ‘macroeconomic’ story on to Meta’s freefall.
Sure, this is part of the story.
But the real story here is that Meta’s business model got blown out of the water overnight, and they’re struggling to adapt.
(That said, Meta still has very deep pockets, and has the advantage of incumbency. Apple’s info was useful, but it’s not the only way to skin that cat. There are other ways to generated targeted ad groups – they’re just more expensive and take longer. But Meta is well positioned to take that challenge on.)
So yeah, point is, don’t mistake a structural change (Apple’s ATT policy) for cyclical signal (recession is coming).
It’s just not true.
And the macroeconomic side is actually holding up pretty well …for now.
JG.