Is Meta Actually Making a Comeback?

2022 was a year Meta, the company formerly known as Facebook in its healthier years, would rather forget. A combination of stalling user growth on its primary social networks, continued regulatory skirmishes, and a near total collapse of investor confidence in the company’s metaverse ambitions left Meta, valued at over $1 trillion just two years prior, closing out 2022 less valuable than Bank of America and Eli Lilly. In less than 12 months, the seemingly never-ending growth machine, managed to eviscerate 70% of its market value.

That grim outlook made Meta’s most recent Q4 earnings report taste palatable by comparison. Yes, Meta’s overall revenues did dip for the third straight quarter in a row, which is technically bad, but the declines were far less gruesome than some on Wall Street analysts had predicted. Meta’s revenue still fell 4% to $32.17 billion, but experts had expected that figure would likely end up somewhere closer to $31.55 billion. Investors reacted to that little silver lining like a starving shipwrecked survivor given a week old Whopper. On Thursday, Meta’s stock jumped nearly 20%, its largest single day leap in almost 10 years. It’s soared nearly 70% since November.

‘Year of efficiency:’ A return to Facebook’s past form?

There are other reasons for hope in Menlo Park too. During its earnings, Meta revealed Facebook had crossed the highly awaited threshold of 2 billion daily active users. 16 million of those users were added in just the last three quarters. Facebook isn’t the first Meta brand to reach that milestone (WhatsApp hit the two billion mark back in 2020) but it is the most important to the company’s ad business (WhatsApp makes far less money). The landmark comes at just the right moment, considering this same time last year Facebook saw its active users decline for the first time in its then 18 year history.

It also became clear last year that investors and technologists alike simply weren’t buying Zuckerberg’s vision of a metaverse of helmet-headed white collars becoming a reality in the next five years. The company just lost $13.72 billion in its Reality Labs unit after spending more than $10 billion on the metaverse the previous year. Despite all that investment, Meta really has little to show for its vision two years out save avatars with legs that barely work and a $1,500 headset with no real use case.

Zuckerberg made clear he isn’t retreating from the Metaverse, but during the most recent earnings call with investors he appeared to reorient his focus towards solving more near-term business challenges. 2023, Zuckerberg said, would be the “Year of Efficiency.” The CEO jumpstarted that “nimble” efficiency in November by axing around 11,000 of its workers, the largest round of layoffs in Facebook history. Cold-hearted investors clapped.

Meta Chief Technology Officer Andrew “Boz” Bosworth made that point on reorientation even clearer in a blog post this week appropriately titled: “focus.”

“We have a core feature offering that is very strong,” Bosworth wrote without specifically invoking the metaverse. “A small feature idea comes up that serves a subset of the market, but it isn’t too hard to do and it isn’t a bad thing, so we indulge. Repeat that thought process a hundred times and you have a cluttered UI, a large team, a slow product, and no obvious path forward.”

Facebook’s legal battles (and victories)

None of that renewed focus on efficiency and user growth reality matters though if Meta keeps getting sued and fined into oblivion by regulators. Even on that front, however, Meta has cause to loosen up some champagne corks. Within hours of releasing its Q4 earnings, a federal judge in California presented the company with a massive gift by rejecting the FTC’s attempt to block Meta’s purchase of VR startup Within.

The FTC can still appeal that decision, but a successful acquisition of the firm by Meta could mark an important inflection point for the company, which in recent years has mostly shied away from big ticket acquisitions out of fear of regulatory retaliation. In the past, then Facebook’s rapid-fire mega-buys of Instagram and WhatsApp played key roles in it eventually achieving mind-numbing valuations and billions of users around the world. Historically, when Meta has struggled to compete, it’s been more than willing to open up a check book instead. Could it see a return to form with an injured FTC?

Same old problems

If all of that sounds overly optimistic, it’s because it probably is. Refocusing on its core business and brutally paring down its corporate workforce may temporarily boost Meta stock price and relieve some investors’ anxieties, but those efforts ultimately still amount to a band-aid over a hemorrhaging wound. Meta may manage to gain some new eyeballs to serve ads to in the coming years in its family of apps, but the reality is its users, particularly on Facebook, are growing up.

A 2022 forecast from Insider Intelligence predicted the Facebook app will lose 1.5 million teen users on the platform between 2020 and 2025. By 2024, just one third of consumers between the ages of 12 to 17 are expected to be on the platform. Facebook’s own researchers expressed anxieties over a glut in young users on the blue app in internal documents published by Gizmodo as part of The Facebook Papers project.

The situation isn’t much better at Instagram, which the company has clung on to in recent years as its main tool to maintain cultural relevance. Though recent data from Pew Research and other sources show young users are still using Instagram more than most other competing platforms, internal Meta documents reported on by the New York Times shows signs of concern for the platform’s future health.

Meta, according to the Times report, views losing younger users to competition social network companies like TikTok and Snapchat as a potential “existential threat” to its business. In response to that threat, Instagram reportedly reserved nearly the entirety of its global annual marketing budget on advertising to teens. Instagram reportedly placed extra emphasis on attracting “early high school,” users believed to be aged between 13-25 years old.

“We’re in a cultural moment where people just seem to be getting tired of the aspirational, performative culture of Instagram,” Cornell University associate professors Brooke Duffy told the Times.