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As Meta enters second-quarter earnings, it faces a perfect storm of threats

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As Facebook mom Meta prepares to release her second quarter results next week, the company’s future has rarely looked so shaky. The company faces negative macro trends; a tightening advertising market; less ability to track users; and a lack of new, young users.

“In all the years I’ve dealt with Meta, this is the most concerned I’ve ever been about the future of the company,” Debra Aho Williamson, chief analyst at Insider Intelligence, wrote in a research note Thursday, summarizing the concerns many people have. investors have feelings for Meta stocks, which have already lost half their value this year.

Despite all the talk of Meta about building a metaverse, the company is still almost entirely backed by its advertising efforts. It collects a unique and comprehensive set of signal data from users in order to target ads to them within its apps. Social ads have long been a cost-effective way for marketers, large and small, to reach large, finely segmented audiences. But Meta’s ability to continue to do so seems uncertain.

“I always said … the Facebook user base was still growing, even in spite of large scandals like Cambridge Analytica, as proof that the company would continue to thrive and remove any obstacles that stood in the way,” Williamson wrote. “Now Meta is losing his grip on his huge audience.” In the last quarter of 2021, Facebook’s global daily user base rejected for the first time in the company’s 18-year history.

The Meta user base in the US shows very little growth in user attention. According to equity researchers at Morgan Stanley, total time users spent on Meta sites/apps was down 1% in the second quarter from the same quarter last year. In this quarter, time spent on Facebook dropped 3% compared to the second quarter of last year, the researchers found. Instagram has remained more appealing to young users, but Williamson says even that app is showing softness in expanding its younger user base.

To keep advertisers happy, Meta needs to reverse those trends, but faces some serious barriers in the process.

Economic headwind

First, macro effects, such as inflation and the threat of a recession, negatively impact the normal flow of advertising dollars as marketers spend more cautiously. This trend was reflected when Snap, which competes with Meta for interactive advertising dollars, punished by investors Thursday after reporting less-than-great ad revenue in the second quarter, despite user growth remaining solid. Snap’s share fell 32%. Meta, which is in the exact same company, also saw its shares fall 5.7%.

What is Meta today?

It’s no secret that TikTok pushes Facebook when it comes to attracting young people and keeping them engaged for longer. According to a study, young users spent an average of € 91 minutes a day watch TikTok videos late last year.

Mimicking TikTok may not even help the bottom line.

Now Meta, who has a history of shamelessly copy successful products and features of its competitors, is Redesign Facebook and Instagram apps to put his TikTok-esque Reels videos in front of the eyes more often. In fact, the apps seem to be designed more and more aroundRoll.

Meta CEO Mark Zuckerberg likes to talk about “connecting the world” and the importance of personal communication with family and friends, but abruptly refocusing around Reels seems out of sync with this mission. With the redesign, Facebook will show users less content from friends and family and more short videos and stories from creators they don’t know. Making that shift without disorienting users won’t be easy.

Mimicking TikTok may not even help the bottom line. The Morgan Stanley analysts say this tactic has indeed improved watch time, but they worry it could end up hurting ad revenue unless Meta finds out how to get more money out of Reels. “In our view… efforts to highlight Reels point to an increasing tactical risk that Reels engagement is more cannibalistic for time and near-term revenue (as Reels still generate revenue at significantly lower rates than Feed/Stories’ core offerings) ), the researchers wrote in a recent investor note.

Apple’s app transparency

Then there is the Apple problem.

The effectiveness of Meta’s ads has always depended on the fine-grained personal preference data the company collects from user movements in its apps and across the web. But now that Apple has given users of its devices the ability to opt out of such trackingMeta’s ability to match ads to specific user groups has been dulled. And the results become visible as advertisers reassess the true cost-effectiveness of the ads.

Add it all up — deteriorating economic headwinds, identity issues (what is Meta today?), and limited ad targeting capabilities — and you have a challenging business environment for a company that once seemed untouchable. We will learn more about how it goes as Meta next Wednesday announces its winnings and holds his talk with analysts after the market closes.

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