Parmy Olson writes:

For years, Wall Street kept faith in Facebook’s powerful ad machine. Investors gave Mark Zuckerberg the benefit of the doubt when he bet the company’s future on the metaverse and they largely forgave callous business practices revealed by a whistleblower. What mattered was the constant user growth that kept the machine printing money — a machine that accounts for a remarkable 98% of total revenue.

It is why, for years, “daily active users” was the North Star to Zuckerberg and his executives. Now, for the first time, that number has declined. Still classified as a “buy” by most analysts surveyed by Bloomberg, Facebook was downgraded by four banks, including JP Morgan Chase & Co.

Facebook said its daily users fell to 1.929 billion in the fourth quarter from 1.93 billion. You can imagine that “2 billion daily users” was firmly in Zuckerberg’s mind as the next big target, but it is hard to see him reaching that now. With his long-term inability to build attractive new services in the face of growing competition, a new reality is sinking in: Facebook looks like a company in decline.

In its earnings call on Wednesday night, Meta pointed to all the headwinds it faces, including a $10 billion hit to its ad business this year from Apple’s privacy changes for its mobile users. And it announced that its Reality Labs segment, where its plans for the metaverse are brewing, lost $10.2 billion in 2021.

But Meta’s biggest weakness has been plain to see. It has tried for years to build a consumer internet service with the same allure as Facebook or Instagram, and each one – from Facebook Watch to TikTok-rival Reels — has fizzled out or struggled to make money. The company’s cryptocurrency Diem recently folded, despite being announced with great fanfare more than two years ago. That business in particular could have pulled Meta back towards its arguably healthier, early days, when it derived roughly 15% of revenue from payments made via games like Zynga’s Farmville. [Continue reading…]