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The Why Behind Meta’s Valuation Decline

After privacy changes and competition from other platforms last year, Meta saw a substantial decline in market value this past quarter. While the drop occurred after a weaker-than-expected earnings forecast on February 2, this was a delayed reaction to challenges communicated and expectations set by the Meta team at several points throughout 2021. Fortunately, advertisers don’t need to panic. Before we discuss if or how this will affect the ways that advertisers use Meta, let’s dive into why it happened in the first place.

What Headwinds Contributed to Meta's Valuation Drop?

1. Stalled user growth

Facebook reported its first-ever user decline in Q4 2021. User activity was down by 500,000 compared to Q3 2021.

2. Increased competition from TikTok

TikTok’s user base has exploded over the past several years, registering an expected 90.6 million US users in 2022. Though it currently makes up only 4% of paid social ad spend for Merkle clients, we expect this to grow. TikTok also continues to evolve its offering for advertisers to create a clearer path for monetization. Check out additional 2022 TikTok predictions in our Q4 2021 Digital Marketing Report.

3. Apple Tracking Transparency (ATT) and privacy legislation

Apple’s April 2021 changes have heavily impacted Facebook and Instagram. Fewer data inputs for audience building and informing machine learning caused reach and performance optimization to take a hit.

What's the Long-Term Outlook for Meta?

Meta financials remain healthy, with an eye towards investing in potential growth and revenue opportunity from the Metaverse. It is worth noting that before the value decline, Meta saw significant market value growth over the past two years. Even after the drop, Meta’s share value has remained at or above where it was two years ago and is currently trending up over the past month. A few counterpoints to the three headwinds above help explain why:

  1. While user growth has stalled, Facebook and Instagram still dominate the paid social ecosystem with the two largest user bases.
  2. TikTok and other competitors, such as Snapchat, still have a long way to go to match Meta, in terms of user base, revenue, commerce offerings, and platform development.
  3. Meta has been on the forefront of addressing the challenges of the privacy future and has taken proactive measures to adapt.

US social users by platform graph                 US ad revenues by social platform graph
Graphs from eMarketer

What Does This Mean for Advertisers?

Good news - Meta’s valuation decline will have little to no effect for advertisers. The decline is more of a delayed market effect, which advertisers felt more gradually throughout most of 2021. There will also be no impact to user experience or support from the Meta team.  If anything, more available features and improvements should be expected from the Meta family.

During its earnings call, Meta indicated that they “continue to introduce product improvements to help improve advertisers’ performance and measurement on our platform”, including existing features such as Aggregated Events Measurement, Conversions API, and conversion modeling. On another promising note, Meta recently announced that their competing ad format, Reels, which had already been active in the US for several months, would be launching globally. This signals that Meta understands the importance of solving for privacy challenges among its other business priorities. Advertisers have more choices than ever for their marketing dollars – they need to feel confident in their ability to target relevant audiences and measure performance, justifying continued investment in the platform. The Metaverse is likely Meta’s greatest opportunity, as their vision will pursue engagement types and ad formats not previously seen. 

How Meta continues to evolve and adapt with the ever-changing digital landscape, growing competition, and the shifting needs and interests of its multi-generational user base will ultimately determine its success and staying power within advertiser portfolios.