In today’s Money Morning…why the Meta pivot matters…Rome wasn’t built in a day…time will tell whether it was worth it or not…and more…
Overnight, Meta Platforms Inc [NASDAQ:FB], formerly known as Facebook, suffered the worst one-day drop in value in history…
The tech stock wiped off US$230 billion from its market cap — equal to roughly $322 billion in local currency.
That is the equivalent of CBA, NAB, and WBC’s total values combined!
So just imagine if the second, fourth, and fifth largest companies on the ASX disappeared. Because that is what just happened to FB shareholders.
A devastating example of the kind of whiplash volatility that even the biggest tech stocks can endure. And perhaps our biggest signal yet that the current correction may have a little longer to play out.
As for the reason behind FB’s horrid day, it was simply down to user numbers.
Because, you see, while revenue and other financial metrics were in line with expectations, user growth wasn’t. For the first time ever, Facebook saw a decline in daily active users for the quarter. It’s an indication that the social media juggernaut may finally have reached its peak.
At least, that’s what the narrative seems to suggest…
Why the Meta pivot matters
Now, while today’s sell-off is impactful, I don’t think Meta is likely to be all that worried about it.
In fact, I’d argue that Zuckerberg and his team have seen the writing on the wall for a while now. That’s part of the entire point of their rebrand to ‘Meta’.
Social media, or at least traditional social media, is reaching a tipping point — not just in terms of how it is consumed but also how it is monetised.
For instance, Apple Inc [NASDAQ:AAPL] is putting in place stricter rules around its privacy policies. It’s a change that will make it harder for platforms like Facebook to collect personal data and tailor ads accordingly on Apple devices. And don’t expect them to be the last to do so.
Privacy, in the digital realm, is fast becoming an integral feature. It’s something that will force a lot of social media sites to either adapt or die.
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Zuckerberg, in my opinion, clearly doesn’t see the benefit of competing in this space — at least, not as hard as Facebook used to.
That doesn’t mean they’re going to abandon Facebook; it’ll just likely demand less of their resources. Time and money that will instead go towards their vision of the Metaverse — technology that is looking likely to be the next big frontier for digital engagement.
After all, that is where the future of this company lies. They want you to explore a budding digital world that you can interact with, rather than scrolling through a feed all day.
Rome wasn’t built in a day
What does all this mean for investors then?
Well, in the short term, don’t be surprised if FB hits more roadblocks in terms of growth metrics. Because like I said, while they aren’t going to give up on Facebook, I wouldn’t be surprised if they devote fewer resources to it.
Long term, though, as this Metaverse comes to fruition, the scope of Meta’s overarching goals will likely come to the fore. Particularly as we still don’t have a comprehensive idea of how best to monetise this sort of technology. That is, beyond just selling headsets.
That’s what I’d be looking out for if I was a FB shareholder.
More broadly, though, for investors in general, I think this result is already signalling a pretty big shift in tech stocks.
Take Alphabet Inc [NASDAQ:GOOGL] (Google), for example. Compared to FB, Google posted a huge quarterly profit just two days ago, beating almost every sales estimate there was.
In total, they made US$75.3 billion in revenue in just three months — a crazy amount of money to think about.
But a lot of that is still coming from ads. The same kind of revenue model that we’re seeing Apple try to dismantle — at least partially.
So while I don’t think Google is at risk of going bankrupt anytime soon, I do think we’ll start to see them consider new business models moving forward too. Because while advertising itself won’t go away either, it does appear to be changing online.
For that reason, I think that while Meta is certainly taking a big gamble on the VR/AR trend, it at least has a long-term plan. It’s something that could give it an edge in what appears to be a fairly big transition for how people engage and consume digital content.
And while it will likely take years to truly reach the masses, they have put themselves in a position to be pioneers of it.
Time will tell whether it was worth it or not…
Editor, Money Morning
PS: Ryan is also the Editor of Australian Small-Cap Investigator, a stock tipping newsletter that hunts down promising small-cap stocks. For information on how to subscribe and see what Ryan’s telling subscribers right now, click here.