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What’s Wrong with Facebook? A Note On Their Q4 Earnings.

What’s Wrong with Facebook? A Note On Their Q4 Earnings.

The last quarter of the year tends to be the most financially successful for most companies, which is one reason why investors were feeling confident about Big Tech as we rolled into the thick of earnings season this week.

Microsoft, Alphabet, and Amazon all have reported solid figures so far this season – and gave investors something to cheer for. However, what investors did not expect was paltry earnings from Meta (the parent company of Facebook).

The social media giant reported over $33 billion in revenue, beating analyst expectations. They also reported $3.67 per share in earnings, which translated to a small miss. But in the end, neither of these figures sank Facebook’s battleship. 

Instead, it was the realization among investors that Facebook has stopped growing. The number of daily and monthly active users on the Facebook family of apps fell for the first time ever – and came up short of analysts’ expectations.

Even if it was just a small contraction (DAUs were 1.929 billion vs. 1.93 billion last quarter), it was a slap in the face for investors. They took it as an indicator of a coming Facebook-pocalypse; a sign that the social media giant is being relegated to irrelevancy.

That’s the reason why the company’s stock fell more than 26% from its evening earnings report on Wednesday.

Active investors, especially those with skin in the game, are already aware that the company reorganized as Meta a few months ago. Perhaps Mark Zuckerberg (or “The Zucc”, as he is known among the meme crowd) foresaw what was coming – and that’s why he sold investors the promise of a novel digital frontier.

At first, it lent credibility to the company’s famous acquisition of Oculus, a VR headset producer. And Oculus was one of the most popular gifts this Holiday Season, which gave investors hope that the reorganization would help Facebook retool and refocus.

But ultimately, in the latest quarter, the pitch that the Zucc gave investors was still a pipe dream. The Family of Apps category – which includes Facebook, Instagram, and WhatsApp, among others – generated 97.4% of the company’s revenue. Meanwhile, its promising new metaverse-centric division called Reality Labs failed to clear $900 million in revenue. It operated at a $3.3 billion loss.

Some journalists and armchair analysts have suggested that this earnings report demonstrates the failed promise of Meta, and some even go further to suggest that Facebook might have surpassed its peak. That the best days are behind it. However, it’s way too early to say if Meta will live up to its name … and more importantly if Facebook’s “Family of Apps” are really in decline.

One quarter is not enough information to make an informed decision, but this is definitely something that FAANG investors – and anybody with money in the market – will want to keep an eye on. Meta is the sixth-largest constituent of the S&P 500 and the fourth largest in the Nasdaq-100. Which means, in short, that everybody loses when Facebook loses.

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