(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)

 

WASHINGTON - Cracks are appearing in the online advertising armor of Meta Platforms’ Facebook unit. The parent company lost around $200 billion of value in after-hours trading on Wednesday following an earnings report suggesting weaker-than-expected advertising growth to come. Headwinds from competition of different kinds are one problem; boss Mark Zuckerberg’s expensive pivot to the metaverse doesn’t help; and investors have been reacting violently to surprises this earnings season.

Meta beat analysts' revenue estimates for the fourth quarter of 2021. But it said it expects first-quarter sales this year below Wall Street expectations of about $30 billion, according to Refinitiv data. It blamed increasing competition and a shift in user preference to Reels, the company’s TikTok copycat, which doesn’t make as much money as other features.

Other competitive challenges are out of Meta’s control. Comparing performance in the first half of this year to the same period in 2021 will be tough given Facebook and Instagram weren’t limited then by new Apple iPhone privacy restrictions, which have made it harder for companies to target consumers. Zuckerberg’s firm, the No.2 in online ads, introduced workarounds which analysts expected would ease those obstacles.

Meanwhile the chief executive has refocused Meta on a new push into augmented and virtual reality. That unit, whose results were reported separately for the first time, saw a slightly bigger operating loss in 2021 than the projected $10 billion, on revenue of just $2.3 billion. These costs are one concern, but the shift in Zuckerberg's attention is another.

Meta’s results contrast with Google parent Alphabet, the top player in online ads. It said on Tuesday that fourth-quarter revenue jumped 32% and projected optimism for this year. Its shares were up by as much as 10% after its earnings report, against the more than 20% plunge for Meta.

These big swings may also partly reflect fragile sentiment among investors in technology-related stocks. Other social networks were also down in sympathy with Meta on Wednesday. Shares in Netflix, with a disappointing outlook for subscriber growth, fell more than 20% after its earnings report last week. Payments giant PayPal closed down 25% on Wednesday after dashing optimism about user growth. Some of that may be temporary. But Zuckerberg should be worried if his company's grip on ads is really slipping.

 

CONTEXT NEWS

- Facebook owner Meta Platforms shares plunged more than 20% after U.S. markets closed on Feb. 2 as the social media company fell short of Wall Street earnings estimates and posted a weaker forecast.

- The company forecast first-quarter revenue in the range of $27 billion to $29 billion. Analysts were expecting $30 billion, according to Refinitiv data.

- The company's total revenue rose to $34 billion in the fourth quarter from $28 billion a year earlier, beating analysts' estimates of $33 billion.

- The operating loss at Meta's Reality Labs, the company's augmented- and virtual-reality business, was $10.2 billion for the full year 2021, up from $6.6 billion the previous year. It was the first time the company had broken out this segment in its earnings.

(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)

(Editing by Richard Beales and Sharon Lam) ((For previous columns by the author, Reuters customers can click on CHON/ SIGN UP FOR BREAKINGVIEWS EMAIL ALERTS https://bit.ly/BVsubscribe | gina.chon@thomsonreuters.com; Reuters Messaging: gina.chon.thomsonreuters.com@reuters.net))