Disclosure – I own no stocks of Meta nor do I hold any short positions.
Firstly, yes hindsight is 20/20 and you're absolutely right in asking why wouldn't I write this post before the Meta crash occurred? But, even ignoring the recent crash, I do believe that Meta's time has come and it will dwindle far faster than most other stocks will.
Almost all tech stocks have crashed ever since the US fed turned hawkish with regard to its monetary policy, Netflix, Tesla, Meta, they're all down. But I do think the party for Meta is over. I will mostly be wrong because Mark Zuckerberg is not the kind of guy you want to bet against but anyways, here I go.
The fall in DAU – What has spooked investors the most in the latest earnings call is the fall in DAU which stands for Daily Active Users. Ever since Meta's inception as Facebook, its DAU has always been growing but the latest quarter marked the first quarter when Meta's DAU has fallen. This is problematic because most of the ad based companies essentially depend on an ever larger growing base of consumers whom they can serve to advertisers. Lower DAU means lower consumers which means lower ad revenue.
There are two ways to grow DAU – either organically or inorganically
Facebook has always managed to grow DAU either organically or inorganically but I feel this will no longer be possible.
The organic route – Facebook could go about this in two ways.
First, they launch a new form of social media platform or a new social media experience. A newer social media experience will require a newer form of hardware to be truly different in the current world saturated with various social media apps and Facebook understands that. Their acquisition of Oculus and rebranding to Meta shows how serious the company is about AR and VR. But the fact remains that there isn't a single mass market AR/VR device yet. There is also no tangible evidence that a fully functional mass market AR/VR device is gonna hit the market anytime soon. Unless that happens, bringing about a truly different social media experience is not gonna be possible. With smartphone as the hardware base, all forms of social media experiences have been tapped out with TikTok coming out with the most innovative social media format (yes I know the content on TikTok is cringe but the format was revolutionary and went on to hook millions of users).
Second, they just plain hope that upcoming teens willingly sign up for Facebook or its various existing properties. The truth is that none of this is happening. Social media is kind of like a cafe. Every kid only wants to go to the coolest cafe in town and no one wants to go to the second coolest cafe. The fact is Facebook has been the least coolest cafe on the internet for quite some time now. The core Facebook app is barely used by teens. Instagram is still doing well but faces tough competition from a resurgent Snapchat and even TikTok. The only other Facebook property with a large user base is WhatsApp but Facebook has been unable to monetize WhatsApp at all. They initially had plans to make WhatsApp work like WeChat but that never panned out because of issues with NPCI in India. The most low hanging fruit for Facebook right now is to insert ads between WhatsApp stories and make some money off of that. But that is literally the ONLY organic way left for Facebook to grow its revenues. No wonder people aren't feeling too optimistic about a company whose only growth arena left untapped is ads between stories of a messenger app predominantly used in developing nations.
The inorganic route – This mostly involves acquisitions. Both Instagram and WhatsApp weren't developed by Meta, however, Meta bought them and monetized one of them (Instagram) while relying on the second to significantly boost its DAU (WhatsApp). Things are no longer the same as they were when Meta bought WhastApp and Instagram. Meta could just acquire TikTok and solve its DAU issue but no antitrust agency in developed worlds will allow that. Most anyhow call for the current Facebook to be broken up and would in no way entertain this company becoming even bigger and even more embedded in people's lives. Meta was very lucky that because of geopolitical reasons TikTok was banned in India, else TikTok was eating Instagram's market share in India like there was no tomorrow.
So, yes, this is why I am bearish on Meta but Zuckerberg isn't a man who gives up easily. The fact that he managed to keep Meta relevant for so long when its competitors like Google Plus, Orkut, MySpace etc died at a much younger age speaks to that guy's competency more than anything else. He might once again pull a rabbit out of his hat but the chances seem increasingly bleak to most people.
Tl;dr – Meta's DAU is falling and there is very little the company can do to arrest it in the near or medium term.
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