Facebook, now rebranded as Meta Platforms, is known (and probably hated) by many. Despite having over 2.8 billion daily active users across its family of platforms – Instagram, WhatsApp, Messenger, and Facebook – Meta has one of the worst public perceptions among the large tech stocks. From the Cambridge Analytica data scandal to its role in Myanmar’s genocide, Mark Zuckerberg has been seen testifying before Congress on numerous occasions.

Despite being riddled in controversy, however, Facebook as a business has performed incredibly well over time. Its revenue has doubled since 2018 to $117.4 billion, and its earnings have grown at a rapid rate (especially given Facebook’s large size) to $39.7 billion. During the COVID-19 outbreak, with many people locked indoors, many have become much more active on social media to connect with their friends and relatives. Since the start of the pandemic, Facebook’s platforms have gained over 550 million users. Its stock price had increased over 3-fold, and Zuckerberg has added tens of billions of dollars to his net worth. Things were going very well.

In October 2021, Facebook released a huge change to its business – it would now use a substantial portion of the cash generated by the social media business to develop “metaverse.”

The metaverse is supposed to be a virtual reality world where we can work, play games, interact with friends, and visit places around the world from the comfort of our homes. The closest thing to the new world, I guess, could be seen in the movie adaptation of Ernest Cline’s Ready Player One, in which humanity lived in a virtual reality called Oasis.

Mark Zuckerberg essentially envisions that the internet, and our lives, will revolve around virtual reality. The announcement received mixed news, as the development of the metaverse would be incredibly capital-intensive, taking cash away from the social media platforms where it could be used to further grow the current business.

Some argue that the implementation of the metaverse reflects Zuckerberg’s lack of confidence in the existing social media business. Although this could perhaps be true, Facebook has shown slowing growth over the past years. The user base hasn’t grown much, and profit growth has mainly been from price increases on Facebook’s ads. Hence, Facebook also likely faced a lot of pressure from investors to expand and find new revenue streams. However, the root cause of the decision was (likely) Zuckerberg’s belief that the Metaverse is the future of the internet.

A decline of $10 billion in revenue is likely to fully trickle down to the bottom line, meaning Facebook’s earnings are also likely to drop by $10 billion which, given that Facebook currently earns around $39.7 billion, is a decrease of around 25%.

The sudden crash represents the skewed relationship between Apple and alternative platforms like Facebook and Tik Tok. iPhone users are crucial to social media platforms, and generate the majority of their revenue. Hence, Apple is in a position of power, and can largely dictate how these platforms operate/track users.

Despite all of the controversy and the collapse in its stock, Facebook remains (intrinsically) a strong business. Few social media platforms offer the reach and level of insights that products like Instagram and Facebook do. All platforms are, essentially, competing for the same marketing/ad capital. Whether it is billboards, brochures, search engines, or platforms like Facebook, the money goes to whoever can offer the highest return on capital invested.

Despite the Apple policy change, the shift to the metaverse, and a worsening public image, Facebook will – for better or for worse – remain a major player in its industry and continue to grow going forward.