Why is Facebook Losing Users?

Facebook parent Meta’s stock suffered its most significant single-day loss yet as the company refocuses on the Metaverse

Facebook parent Meta’s recent quarterly earnings report revealed a startling statistic: For the first time, the company’s growth is stagnating around the globe.

According to the report, Facebook lost daily users for the first time in its 18-year history, falling by about half a million users in the last three months of 2021, to 1.93 billion logging in each day. The loss was seen to be most tremendous in Africa, Latin America and India, suggesting that its product is saturated globally and that its long quest to add as many users as possible has peaked.

The company faces challenges on multiple fronts; as competitor TikTok booms, federal and international regulators scrutinise its business practises, and it begins a lofty transition to focus on the Metaverse. Its newest ambitions for futuristic technologies also saw a slow start, especially by one key metric. Facebook revealed for the first time how much of a money-losing proposition its investment in virtual- and augmented-reality hardware is, the suite of products the company dubs the metaverse.

The company spent more than $10 billion on building its hardware division, Facebook Reality Labs (FRL), in 2021. FRL, the company’s hardware division that produces the Oculus Quest headset, lost $3.3 billion in the quarter, despite bringing in $877 million in revenue.

Investors too appeared to punish the company for a combination of factors, including the slower growth numbers, a lower revenue forecast for the coming months, and failure to generate advertising revenue from Reels, its short-video TikTok copy on Instagram, as well as costs related to changes to Apple’s operating system that prevent ad-tracking, an update to its iOS 14.5, which hurts most companies like Facebook, that are built on ad revenue.

Popups do not appear if a developer tries to track you across its services, like Facebook following you from its leading platform across Messenger and Instagram. Many iOS users reported that Apple’s strong stand to disrupt ad tracking in its Safari browser too seemed like a no-brainer and was termed to be deeply controversial by experts.

Facebook’s total revenue of $33.67 billion last quarter was primarily derived from targeted advertising on its leading social network. The company also made significant investments toward its aspiration of becoming a hardware giant, including hiring over 10,000 people and rebranding itself to Meta. But that transition is still in its early days.

“Last year was about putting a stake in the ground for where we are heading; this year is going to be about executing,” said CEO Mark Zuckerberg on the company’s earnings call. Zuckerberg spoke several times on the earnings call about the competitive threat the company faces from the video platform TikTok. He explained that this competition was why the company was pushing hard to develop its short-form video product, Reels. Zuckerberg conceded on a call with investors that the company faces growing competition in the race to capture people’s attention online and would need to work to make sure Reels brought in more money. “People have a lot of choices for how they want to spend their time, and apps like TikTok are growing very quickly, And this is why our focus on Reels is so important over the long term,” he added further.

Facebook’s user growth has stalled in the United States and Europe for the past several years. Still, the company previously made up for it by consistently adding users worldwide. These new numbers, which show a dip in daily active users on the Facebook app, suggest that Facebook is becoming saturated globally, a trend that demonstrates another reason the company is pushing so forcefully into new arenas such as hardware. The company also said that data plan pricing increases in India last year also caused slower than expected growth.