Meta Platforms
FB
CEO Mark Zuckerberg announced in a post dated Jun 1 that the company’s COO, Sheryl Sandberg, is stepping down after a 14-year stint.
Sandberg was the advertising head at
Alphabet
GOOGL
in the mid-2000s.
She has been instrumental in creating personalized advertising, which the tech industry relies on heavily today to generate revenues.
In fact, Sandberg was one of the main people who orchestrated Google’s ad business, which became one of the most profitable ventures of Alphabet.
Sandberg joined Meta Platforms in 2008, four years after the company was founded. Meta Platforms, then known as Facebook, was still a small start-up and struggling to turn into a profitable business.
Sheryl pioneered Facebook’s ads business model.
In the first quarter of 2022, Meta earned total revenues of $27.91 billion. Advertising revenues (99.2% of Family of Apps revenues) increased 6.1% year over year to $27 billion and accounted for 96.7% of first-quarter revenues.
Meta Platforms, Inc. Price and Consensus
Meta Platforms, Inc. price-consensus-chart
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Meta Platforms, Inc. Quote
However, Meta rapidly surged ahead, and Sandberg had to face criticism for its failure to rein in large-scale misinformation, hate speech and privacy breaches.
Sandberg was hauled along with Zuckerberg on multiple occasions in front of the United States Congress to interrogate them about foreign interference in elections and mishandling of users’ personal data. The most infamous scandal was the Cambridge Analytica, due to which Sandberg faced a lot of criticism.
Meta Platforms shares fell 2.58% to close at $188.64 on Jun 1, following the news. In the year-to-date period, Meta’s shares have fallen 43.9% compared with the Zacks
Computer and Technology
sector’s decline of 24.5%.
Meta Ad-Business Model Facing Threats
Undoubtedly, Sandberg’s departure doesn’t bode well for Meta’s ad-based business model, which has been under persistent pressure due to increasing scrutiny by governments worldwide.
The ongoing Russia-Ukraine war and growing macro-economic challenges have hurt the advertisers’ budget, which is expected to negatively impact Meta’s revenue-generating ability.
Meta is currently suffering from
Apple
’s
AAPL
iOS changes and engagement-related headwinds.
Apple’s iOS changes have made ad targeting difficult, which in turn, has increased the cost of driving outcomes. Measuring these outcomes have become difficult. Meta expects these factors to hurt advertising revenue growth throughout 2022. Javier Olivan is set to become the new COO of Meta. Zuckerberg stated that Javier’s role would not be similar to that of Sandberg. The change in roles comes as the company is facing increased competition across all of its business segments, specifically in the Metaverse, which is crucial to its future growth prospects.
Meta Looking to Diversify Revenue Source
Meta has been actively looking to diversify its revenue source from the ad business model. In order to turn a new leaf, Zuckerberg rebranded the company as Meta Platforms. The company is set to trade on NASDAQ under the new ticker symbol META beginning Jun 9.
All of this is in accordance with Zuckerberg’s bold ambitions to create the Metaverse, which will allow the development of commercial activity in the alternate reality independent of the real world.
Reality Labs’ revenues in the first quarter of 2022 (2.5% of total revenues) increased 30.1% year over year to $695 million. Reality Labs includes augmented- and virtual-reality-related consumer hardware, software and content.
Meta is expected to spend more than $10 billion over the next 10 years to build the Metaverse.
This Zacks Rank #3 (Hold) company is investing heavily to develop a VR content ecosystem. The launch of the VR headsets, Rift and Oculus Quest, its first all-in-one headsets with no wires and full freedom of movement, has been a step toward this goal. You can see
the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here
.
Per
Bloomberg
, the Metaverse market globally is expected to reach $800 billion by 2024. As the primary first mover in creating the Metaverse, Meta is expected to seize market share rapidly in the alternate reality space.
However, Meta is facing stiff competition in the Metaverse from the likes of Microsoft and Twitter.
Microsoft
MSFT
recently announced the acquisition of Activision Blizzard for $68.7 billion would help it to enter the world of gaming in the Metaverse.
Microsoft’s strategic plan to buy Activision aided it in becoming the third largest gaming company in the world and provided it with the expertise to claim its stake in the multimillion-dollar Metaverse market.
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