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Facebook Parent Company Meta Stock Plummets on Warning of Q1 Ad Slowdown

Internet giant's metaverse segment operating loss of $3.3 billion in Q4 pushed total net income down 9%

Mark-Zuckerberg-Meta-Facebook-Connect-2021
Courtesy of Meta

Meta, Facebook’s parent company, forecast slower growth in the first quarter of 2022, citing “headwinds to both impression and price growth” in its ad business, sending the stock into a nosedive.

In addition, CEO Mark Zuckerberg’s high-stakes gambit to turn Facebook into a “metaverse” company — burning billions of dollars — led to a rare earnings miss for the company in Q4. Facebook average daily active users were flat for the quarter.

Meta’s stock dropped more than 23% in after-hours trading. The news also pulled down the shares of Snap (-16%) and Twitter (-8%).

In the current quarter, “On the impressions side, we expect continued headwinds from both increased competition for people’s time and a shift of engagement within our apps towards video surfaces like Reels, which monetize at lower rates than Feed and Stories,” the company said in announcing Q4 2021 results.

On the ad pricing side, Q1 growth will be hurt by several factors, including greater impact from Apple’s iOS privacy changes and “we anticipate modestly increasing ad targeting and measurement headwinds from platform and regulatory changes,” Meta said. In addition, “we’re hearing from advertisers that macroeconomic challenges like cost inflation and supply-chain disruptions are impacting advertiser budgets.”

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CFO Dave Wehner told analysts on the Q4 call that the company estimates a roughly $10 billion economic impact in 2022 because of Apple’s iOS changes, which limit Meta’s ability to target and measure ads.

For the fourth quarter of 2021, Meta reported ad revenue of $32.64 for its core social apps, including Facebook and Instagram, an increase of 20%. An operating loss of $3.3 billion for Meta’s Reality Labs segment, which encompasses its metaverse businesses, pushed total net income down 9%, to $10.29 billion.

It’s the first year-over-year decline for the company’s net income since Q2 2019. Zuckerberg previously said Meta would invest around $10 billion in metaverse projects for 2021. Losses for Reality Labs came in at $10.2 billion for the full year on revenue of $2.27 billion.

Overall, Meta’s Q4 revenue of $33.67 billion slightly topped Wall Street expectations of $33.41 billion. The company’s earning per share of $3.67 missed analyst targets of $3.84 for the quarter, per Refinitiv. Ad revenue had been pegged to come in at $32.6 billion.

Meanwhile, Facebook daily active users (DAUs) hit an average of 1.929 billion on December 2021, up 5% year-over-year but slightly slower growth than analysts anticipated — but actually a decline of 10 million from Q3. Across Meta’s family of apps, DAUs averaged 2.82 billion for December, up 8% year over year.

Zuckerberg last fall outlined the vision for Meta, Facebook’s new corporate name, setting a goal of reaching 1 billion over the next decade with new virtual experiences that are more immersive than today’s social media. The company’s Q4 report, though, shows Meta has a long way to go to turn VR and AR products and services into a viable business.

The Q4 earnings report is Meta’s first to break out results for its two segments: Family of Apps (FoA), which includes Facebook, Instagram, Messenger, WhatsApp and other services; and Reality Labs (RL), which includes augmented and virtual reality related consumer hardware, software and content.

The company’s name change to Meta came amid a raft of articles critical of Facebook, based on leaked documents dubbed “The Facebook Papers,” which documented how top execs repeatedly ignored or downplayed employee concerns about misinformation and other harmful content. Zuckerberg has denied that the pivot to Meta had anything to do with his company’s PR problems.

In announcing the Q4 results, the company said Meta’s Class A common stock is expected to begin trading on Nasdaq under the ticker symbol “META” in the first half of 2022. That will replace the current FB ticker symbol, which has been used since the company’s IPO in 2012.

Meta ended 2021 with cash and equivalents worth $48 billion. It reported 71,970 employees as of Dec. 31, up 23% year-over-year.