Facebook’s Stock Drop & The Rise of the Conscious Consumer
Public market volatility is certainly not a new concept for our audience. Nevertheless, last week’s market correction was fairly alarming to investors worldwide.
Several macroeconomic factors are at play here, but if you scratch just below the surface, a hidden undercurrent of change in consumer behavior reveals a far more interesting trend. Public concern around trust, privacy, health and the environment have been at the forefront for years, but it appears the tipping point requires another ingredient: competition. Let’s unpack how a lack of innovation paired with loss of consumer confidence led to an erasure of over $230B of enterprise value at Meta (parent company of Facebook) and sent the Nasdaq tumbling. Moreover, let’s explore what this signals for future tech giants.
Screenshot of $FB on the NASDAQ via Google Finance
When asked about the stock’s performance, Facebook’s PR team outlined several potential underlying causes. The first of which pointed fingers; the second looked inward and hinted as some degree of accountability. Neither addressed the elephant in the room. Let me explain.
Initial blame was heaped onto Apple and their new policy surrounding privacy. In the battle for public perception, Apple has taken a firm stance on user data protections, going so far as to launch global marketing campaigns like the one depicted below. The tradeoff for user privacy comes at the expense of Facebook (and really any advertiser looking to track user behavior across the internet). While iPhone owners rejoice, digital marketers are realizing a decline in return on ad spend. Up until recently, there were few alternatives to Facebook and Instagram which made Meta into a monopolistic cash machine, serving almost as a requisite tax to advertise online. They also cited supply chain disruptions as another problem outside of their control.
Example Apple's Privacy-First Ad
Conversely, a somewhat introspective Mark Zuckerberg (Meta CEO), made clear he may personally have a role in the declining stock price. The recent rebranding effort from Facebook to Meta was part of a broader plan to pivot the social media behemoth into a pioneering force for the inevitable metaverse. If you’re unclear on the metaverse, here’s a great primer. Long story short, Zuckerberg et al are betting big on a combination of VR/AR, social media, gaming and blockchain technology to fuse our real and digital worlds. Their foray into the space arguably started with their announcement of Horizon Workplace, a VR experience for collaboration and meetings. He conceded that perhaps his articulation of the company’s vision might not have been clear enough. Despite early skepticism, he plans to reinforce this mission and align the company towards life in the metaverse.
Screenshot of Meta CEO, Mark Zuckerberg, in Horizon Workplace VR
Let’s recap. Privacy, supply chain, and a lack of clarity on our future in the metaverse are responsible for a 20% stock price drop according to Facebook. I tend to agree that each of these factors played a part. But the real showstopper was sidestepped.
For the first time in the company’s history, the daily active user count declined and total users saw flat growth.
When you’ve got billions of users on your app, this might seem like a blip, but it’s significant. And here’s where the two-pronged issue of competition (read: lack of innovation) and consumer sentiment become a catalyst for change. In 2020, roughly 97.9% of Facebook’s revenue came from advertising. For years, Facebook (and Instagram) dominated the space with the best tools, a growing user base, and consistent ROI. Even when competitors cropped up, it was tough for advertisers to reallocate spend to new platforms simply because of network effects (not enough users to target or enough ROI to justify new channels). In fact, Facebook has repeatedly cloned features from competitors to varying degrees of success. Instagram Stories was poached from Snapchat and their Reels product is a TikTok copycat. The thing about network effects is that they are tough at the start, but once they get going, the curve is exponential. Today we are witnessing other platforms that are competitive, popular and growing.
Fundamentally, Meta (Facebook) is powerful due to their ad targeting capabilities and despite antitrust investigations, public outcry, and published research on harms to teen users, it’s been difficult to strip that power away, simply because there’s money to be made. But this decline is daily active users might just be a chink in their proverbial armor. As consumers wise up to the negative externalities of predatory platforms and viable alternatives present themselves for both sides of the network (users and advertisers — not to mention completely novel business models!) there’s an opportunity for a paradigm shift in social media. A great example of this type of emergence is Yubo, a portfolio company building social video live-streaming. Last November, our founding Partner, Elina Berrebi, outlined her views on conscious social consumption for today’s youth on BFM.
The lesson here? The biggest change agent is the consumer and no company, no matter how dominant, is permanent. Company values need to be aligned with those of the modern consumer to succeed: we put a premium on environment, social justice, equity, governance, mental health and positive progress. These values are core to the way we evaluate companies and we believe they will contribute to the success of the next generation of technology leaders.
