Meta Is In Serious Trouble. Here's Why

Meta is not exactly in the best shape right now. Reports suggest that the social network Facebook isn't growing like it once was, and Meta's other businesses in advertising, VR, and the metaverse aren't doing particularly well at the moment. It would appear that the biggest hurdle that Meta faces is slowing revenue growth, something that has already started to show its effects on Meta's plans.

The company has reportedly canceled plans for its first smartwatch, which had two cameras and was slated to hit the shelves next year. Codenamed Milan, the smartwatch was canned due to issues with EMG (or Electromyography) tech implementation, but cost-cutting is also cited as one of the reasons in Bloomberg's report. In May, Meta announced plans to slow down, or even freeze, hiring for mid- or senior-level positions, days after declaring its financial results for the first three months of 2022.

According to a Reuters report, Meta told employees at Reality Labs — the division tasked with building the metaverse in the first place — to brace for lay-offs. Facebook, too, hasn't been coy about its revenue slowdown woes. "In light of the expense guidance given for this earnings period, we are slowing its growth accordingly," a Meta spokesperson told CNN. In the first quarter of 2022, Meta posted its slowest ad revenue growth in over a decade. This came right after Facebook reported a decline in user count for the first time in its history between Q3 and Q4 of 2021.

Problems galore, shrinking revenue

Meta is at a critical juncture in its history, burning through cash in efforts to build and be a major player in the metaverse while also facing the harsh reality of stagnant revenue growth. Apple's App Tracking Transparency (ATT) framework has already had a huge impact on Facebook's ad revenue prospects. "The impact of iOS overall as a headwind on our business in 2022 is on the order of $10 billion," CEO Mark Zuckerberg during an earnings call.

The company is already working on measures to negate the effects of Apple's curbs on ad tracking, but that likely won't bear fruit anytime soon. With Google also planning similar measures for its Android ecosystem by 2024, Meta is facing a narrowing pipeline for ad revenue through the future. For a company that has relied so heavily in the past on its ad-tracking network to fill its coffers, talk of industry-wide privacy and anti-tracking measures are definitely ringing alarm bells. Plus, Sheryl Sandberg, the COO credited with turning Facebook into an ad behemoth, is also departing the company.

At this point in time, Facebook needs its investors to trust in its vision of the metaverse — a tough ask for a group that has no dearth of skeptics, and no mercy for time-consuming measures that don't pave a clear path to money. Meta needs to deliver on its lofty promises and also come up with compelling metaverse products soon while avoiding any further scandals and keeping employee morale high.