Where are the users? Why Facebook’s stock is imploding

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Competition from TikTok. A stagnant user base in key markets. A pricey bid to invest in virtual reality that could take years to pay off.

These are just a few reasons investors are dumping Facebook’s Meta (FB) after a disastrous earnings report, which could wipe more than $200 billion off the company’s market value. What’s happening: Meta said after markets closed on Wednesday that its profits fell during the final three months of 2021 as the social media company invested heavily in technology it needs to ramp up its offerings in the “metaverse,” which it sees as the future of its business. Its shares are down more than 22% in premarket trading, dragging other tech companies down with it. Snap and Pinterest, which report earnings Thursday, are 16% and 8% lower, respectively.

Breaking it down: There’s a laundry list of reasons why Meta’s earnings delivered a reality check for Wall Street. CEO Mark Zuckerberg said that competition from rival TikTok, whose short-form video product is more popular than Meta’s, is weighing on the company’s ability to monetize its Reels product. “We face a competitor in TikTok that is a lot bigger, so it will take a while to compound and catch up there,” Zuckerberg said on a conference call with analysts. Monthly active users of Facebook also stagnated versus the previous quarter at 2.91 billion, while daily active users in the United States and Canada dropped. And Meta reported slowing growth in its core advertising business, which still makes up around 99.5% of its total revenue.

Yet the biggest shock may have come from Zuckerberg’s wishy-washy assessment of the company’s outlook as Meta pumps billions of dollars into augmented and virtual reality. “This fully realized vision is still a ways off,” he said. “And although the direction is clear, our path ahead is not yet perfectly defined.” UBS analysts Lloyd Walmsley, Chris Kuntarich and Mary McKennon had this to say in response: “Indeed.” “We were struck by the magnitude of priorities the company is juggling concurrently (seven?), most of which do not appear likely to drive a near term improvement to the revenue outlook,” they wrote in a note to clients.

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