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Following the news that Meta reported its first-ever year-over-year drop in revenue, Rachel Foster Jones, Thematic Analyst at GlobalData, a leading data and analytics company, offers her view: “Meta is facing the perfect storm, from slashed advertising budgets due to inflation, Apple’s crackdown on privacy, competition with TikTok, and economic uncertainty, all of which are reflected by the company’s first-ever decline in revenue. This comes at a pivotal, transition point for the company as it is looking to diversify away from its core ad business model with heavy spending on the metaverse.

“However, it’s too simple for the company to just blame economic headwinds. Meta is struggling to keep up with fierce competition from TikTok which is drawing its users away, potentially making Meta the less attractive choice for marketers.

“Meta is attempting to contend with TikTok by mimicking its algorithm for feed design and content, aiming to generate 30% of its users feed with recommended content. However, as people use Facebook and Instagram as a social platform, altering the user experience at such a quick pace could make these platforms less attractive for users and may mean sacrificing the loyalty of some of its long-time users.

“Instead, Meta desperately needs to adjust its core ad-based business strategy and offerings. Although Meta is investing in its short-form video content, Reels, it needs to learn how to monetize Reels quickly. Reels engagement has increased but this is only drawing users away from monetizable offerings such as stories. Price per ad has slumped and as users choose to engage more with Reels, marketers will fail to continue to see the appeal in Meta. Failure to monetize short-form video content will concern investors as only then can it successfully support its hemorrhaging metaverse division.”