Peak Facebook?

Facebook lost users for the first time ever as there were 500,000 fewer active users in Q4 of 2021. Young people have been leaving Facebook for a long time and TikTok’s popularity is sucking away attention from Facebook.

If Facebook becomes permanently uncool, then it could eventually head towards the decline of MySpace and Friendster. Facebook is much larger than those companies ever were and has stayed dominant for longer and has actual profits. Teenage users of Facebook in the US has declined by 13 percent since 2019 and have been projected to drop 45 percent over the next two years. Facebook will lose 1.5 million teen users between 2020 and 2025. Facebook’s decline among consumers ages 12 to 17 will continue, and just 35.3% of internet users in that age group will use the platform in 2022. In 2024, that figure will drop to under one-third.

Facebook is pushing its TikTok copy Reels and is spending heavily on the Metaverse which is 3D virtual reality. The sharper decline in teen users and flattening usage from other users means Facebook is making defensive moves and fighting from weakening positions. Tencent and others are also competing for the Metaverse.

Facebook has the data to know how much of threat TikTok poses to them. However, unlike Whatsapp or Instagram, Facebook could not buy TikTok. Tiktok is a Chinese company. TikTok recently passed Snapchat and Pinterest to become the Third Largest Platform. Facebook and Instagram are still ahead but the gap is closing.

Here are some quotes from the Facebook earnings call:

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, as is our work to make sure that our apps are the best services out there for young adults, which I spoke about on our last call. The second area, and related to this, is that we’re in the middle of a transition on our own services toward short-form video like Reels. So as more activity shifts toward this medium, we’re replacing some time in News Feed and other higher monetizing surfaces.

So as the engagement of the new thing starts to replace some of the engagement in the old thing, it creates a near-term headwind for revenue, but it’s not — that part is — at this point, now, is not that big of a concern for us. I mean, it makes some of the stuff, you know, not as clear in the near term, but over the long term, we’re pretty optimistic about that. The dynamic that I think is actually a little bit different with Reels than what we’ve seen with Stories and mobile feed in the past is with Reels, I would say that the teams are executing quite well and the product is growing very, very quickly. The thing that is somewhat unique here is that TikTok is so big as a competitor already and also continues to grow at quite a faster rate off of a very large base.

Mark Zuckerberg — Chief Executive Officer

I can take the Reels question. So we do see a huge amount of potential ahead. But, you know, I think sometimes when we say that there’s — you know, that we’re closer at the beginning, what that means is that we still have a lot of kind of fundamental questions to overcome in order to make progress to get where we’re going. With this product, what we see is, there is very clear product-market fit, and it is growing incredibly quickly.

It — you know, we face a competitor in TikTok that is a lot bigger, so it will take a while to compound and catch up there. But fundamentally, you know, we think that there’s a lot of potential for it to continue growing. So to your question, do we have the content that we need, you know, it’s a flywheel. So the better tools that we can build for creators and the better monetization we can offer them, which tends to be an advantage that we have over other competitors is how effective our monetization and ad systems are, then I mean the bigger it gets, the more it will attract more creators, and it will kind of build on itself.

SOURCES -Emarketing, Facebook Q4 2021 earnings call
Written By Brian Wang,