What happened
Shares of Meta Platforms (META -1.16%) fell 32.6% in February, according to data provided by S&P Global Market Intelligence.
The social media company's stock has fallen by 37.7% year to date and is tumbling along with many other growth stocks.
Image source: Getty Images.
So what
Meta Platforms released its fourth-quarter and full-year 2021 earnings results last month. The downbeat set of numbers and weak forecast for this year have raised concerns about the company's growth trajectory. During the quarter, total revenue increased by 20% year over year to $33.7 billion but a spike in expenses caused operating income to dip by 1% year over year to $12.6 billion. Net income fell by 8% year over year due to higher provision for income taxes.
It didn't help that CFO David Wehner delivered a muted outlook for the first quarter of fiscal 2022 with a forecast of 3% to 11% year-over-year growth in the company's top line. Increased competition and changes in Apple's iOS rules were cited as reasons for the slower growth.
Investors were also spooked by Facebook's first-ever quarter-over-quarter fall in daily average users (DAU). DAU for Q4 dipped to 1.929 billion, slightly lower than the 1.93 billion in the prior quarter. Although the fall was mild, it was taken as an ominous sign that Meta Platforms may be witnessing further falls in user levels in the coming quarters.
Now what
Despite these challenges, CEO Mark Zuckerberg outlined seven major investment priorities that can help to reinvigorate growth. To tackle competitors such as TikTok head-on, Meta Platforms will focus on rolling out its own short-form video format, Reels. Reels will replace some sections of Facebook's news feed, resulting in lower monetization, but should help to improve overall engagement over time.
This means the company is willing to sacrifice short-term profits to recalibrate its strategy toward short-form video. Over time, as engagement increases, the company will be able to monetize this format. The other areas that Meta Platforms will focus on include community messaging, advertisements, privacy, artificial intelligence, commerce, and the metaverse.
New tools will be built to make it easier for people to buy online, while the company will also rework its advertisement infrastructure to continue to deliver personalized ads. Artificial intelligence will not only help to deliver better ads using less data, but is also instrumental in helping to build Meta Platforms' vision of the metaverse. It's still early days, but the strategic initiatives undertaken by the company should bear fruit for the business in the future.
