Meta Loses Its Way As Retail Effort Fades
Meta Platforms (META) operates the world’s biggest and most important social media platform, and the company is losing its way, badly.
The Menlo Park, Calif.-based company will dramatically reduce its eCommerce ambitions, according to a report last week in The Information. It would be a huge setback for Meta, and shareholders.
Investors should expect shares to retreat further in the near term.
Shareholders have had a rough go lately. The stock is down 54.5% year-to-September. The market capitalization has shrunk to only $412 billion. Everything has gone wrong, from failed soft launches of its Metaverse, management controversies, and constant squabbling with Apple (AAPL).
At its core, Meta is a series of deeply interconnected digital platforms. Facebook, WhatsApp, and Instagram are the internet for most of their members. It is where they go to socialize, exchange photos, and chat online with friends.
Through the second quarter of 2022, Statista notes that 2.9 billion members login at Facebook alone least once a month. That figure jumps to 3 billion with the addition of core properties, WhatsApp, Instagram and Facebook Messenger. And 80 million businesses used Facebook to connect directly with customers.
Monetizing these connections beyond advertising has been a missed opportunity.
Mark Zuckerberg, chief executive, in 2020 aimed to change that with Shops.
The eCommerce initiative was supposed to help members across Facebook and Instagram create contained, end-to-end eCommerce storefronts. It was not a stretch to imagine users sharing photos of products on Instagram and Facebook Groups, then completing online sales in Shops using Facebook Pay, its digital payment processor.
Keeping member payment credentials stayed inside Pay offered another key benefit. Aside of portability across all of the Meta platforms, being self-contained provided complete control of the user experience. There were no annoying logins or hand-offs to third party processors.
Control is a really big deal. Meta’s current corporate challenges stem from lost control.
Meta abandoned its digital coin plans in January after Washington lawmakers worried about too much platform control. Sheryl Sandberg, the past chief financial officer left the company a few months later following a series of security breaches around third party developer access. And changes by Apple to its operating system have crippled Meta’s ability to track users and sell advertising inventory across iPhones and iPads.
eCommerce seemed like a path to taking back control. Now those plans are being scaled way back.
The Information reports that Instagram staffers were told last week that the shopping page will eventually go away, and be replaced with a less personalized version known internally as Tab Lite. Workers were directed to focus more effort to pushing initiatives that drive advertising revenue.
The news could not come at a worse time. Meta reported in July that ad sales fell for the first time since its launch as a public company in 2012. Second quarter revenues fell to $28.8 billion, versus $29.1 billion a year ago. While the modest 1% decline might seem insignificant, it is especially stark against growth of 28% in 2021.
The other problem is Tik Tok. The viral Chinese-owned social media platform has quickly become an intense competitor to Meta properties. Tik Tok was the most downloaded mobile app in 2021 and so far in 2022.
Meta shares in September came under heavy pressure. The stock declined by 9.4% to $153.13, its lowest level since 2020. Although shares trade at only 13.3x forward earnings, and 3.4x sales, investors should worry about further downside risks. The 2020 low is $137 and that level is definitely in play.
Also, analysts are likely to rein in earnings expectations as Meta slashes its eCommerce ambitions. The next several months should be rough for shareholders.
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