What's up guys and welcome back to wall street millennial on this channel, we cover everything related to stocks. In investing this, video is made in partnership with karma a free, app in chrome extension that ensures you never miss a price drop or coupon code, but more on that later, facebook has been having a rough time recently with a share price falling more than 25 percent. After giving disastrous guidance for the first quarter of 2021 over the years, facebook has dealt with a long list of controversies from the cambridge analytica debacle to anti-monopoly concerns and the effect of their product on the mental health of teenagers. But one after the other zuckerberg has been able to deal with all these issues and his company continued posting record profits.

At the peak this past september, facebook stock price was almost a 10 bagger, since its 2012 ipo and its market cap was closing in on the one trillion dollar mark. With the recent earnings release, the stock is now down almost 40 from the recent highs. So what is the root cause of this epic reversal in fortunes? It all comes down to one man tim cook, in 2021, apple rolled out, new privacy features which greatly limits the ability for advertisers to obtain personal data from iphone users, while they didn't say so. Specifically, it's pretty clear that this was targeted at facebook.

Facebook has built its entire business model on tracking data from its users and selling this to advertisers in their most recent earnings call facebook said that apple's new privacy policies will cost them 10 billion dollars in lost revenue for 2022.. On top of this they're burning about 10 billion dollars per year, investing in the metaverse investors seem to think the metaverse will be a giant flop and that their name change was just a gimmick to distract from the problems within the company's core advertising business. Over the past decade, facebook has been one of the greatest success stories in silicon valley and has generated hundreds of billions of dollars in value for their shareholders, but are there glory days now behind them in this video, we'll look at why facebook's business is deteriorating and Whether zuckerberg will be able to turn things around quick pause from our sponsors over at karma karma is an all-in-one shopping assistant that automatically helps you shop, smart and save time and money automatically. I use the graphic design platform canva for a lot of graphics within my videos.

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If you do any type of shopping online make sure to check out karma, you can download the chrome extension by clicking the link in the description below and now back to the video to understand. What's going on, we first have to understand facebook's business model, all of facebook's apps, including facebook, instagram, messenger and whatsapp are free to download and use. Yet the company is still able to generate over 100 billion dollars in annual revenue. They make the vast majority of their revenue and more than 100 of their profit from selling digital advertisements.

When you're scrolling through facebook or instagram, you will occasionally see ads for all types of brands. Every time you click on an ad or sponsored post, facebook charges the brand something in the neighborhood of 25 cents, while this doesn't sound like a lot with 2 billion users scrolling through facebook's apps every single day. These 25 cent clicks add up fast. Over the past decade, facebook's revenue has increased more than 30 fold, while their user base has grown.

During this time, the majority of their growth has come from increased monetization from 2011 through 2021, their average revenue per user skyrocketed from five dollars to more than forty dollars. So how are they able to achieve this growth? Facebook hires many thousands of engineers, one of their main goals, is building a world-class advertising platform to make sure facebook ads are valuable as possible. That means when you're scrolling through facebook - and you see an ad, they want to maximize the probability that you'll click on the ad and buy the product. One of the most important tools facebook has used for the success is apple's id for advertisers or idfa.

Every iphone is given a unique idfa number: it's a string of numbers, kind of analogous to a social security number importantly, whenever you log into any app on your iphone, they can see your idfa number. There are two main ways that facebook used, the idfa purchase, attribution and collecting data from non-facebook apps, we'll start with purchase, attribution, let's say you're scrolling through facebook, and you see an ad for a new mobile video game. If you click on the ad directly within facebook and buy the game, facebook knows that you purchased the game and can report this data to the advertiser. However, let's say you were about to go to bed when you saw the facebook ad, you think the game looks cool, but you don't have time to download it and start playing it.

The next day after you wake up, you might remember the game and go directly to the app store to buy it because of your unique idfa number. Facebook can tell that you downloaded the game one day after seeing the facebook ad, even though you never clicked it directly. Thus, they can attribute this sale to the facebook ad campaign because of idfa facebook can tell advertisers exactly how many conversions their campaign generated. Advertisers love this because they can see their exact advertising roi in real time, but even more important to facebook is that idfa allows them to collect copious amounts of granular data from each user.

Facebook creates an extremely detailed data profile for each user, which they use to target their ads. For example, if you follow a bunch of esports related pages on facebook, they will know you're a gamer and might start showing you ads for gaming, pcs. This is to be expected, as it's all happening within the facebook app, but what a lot of people don't realize is that idfa allows facebook to track what you do even when you're not logged into facebook, let's say you're surfing the web on safari. Looking up stuff about hawaii because of idfa facebook can see that you're searching about hawaii and figure that you're planning a vacation, they'll, add this to your user profile and start showing you ads for travel agencies or other things of that nature.

Basically, facebook collects data on everything you do on your phone to build an extremely detailed user profile. This allows them to show you highly relevant ads with high conversion rates and because of purchase attribution. They can clearly show advertisers how valuable facebook ads are and charge them. Accordingly, so we know facebook collects a huge amount of user data and uses us to make tens of billions of dollars per year in advertising revenue.

But is it really that bad they argue? Their data collection is a good thing, because you don't waste your time. Viewing irrelevant ads, you only see ads for things that you're, probably interested in so for many years. People didn't really care that much about facebook's privacy infringements. This all changed in 2018, when the cambridge analytica scandal was exposed.

Cambridge analytica was a british company that helped various political campaigns with their digital marketing strategies. A former employee of that company said that they inappropriately accessed the facebook profiles of roughly 50 million american citizens in the lead up to the 2016 presidential elections. They created psychological profiles of these users and used this to help the trump campaign target ads, which evoked strong emotions and convinced them to vote for trump. What cambridge analytica did was far more extreme than what facebook does in its normal course of operations.

Nevertheless, it brought the issue of data privacy and social media to the limelight. Now people have realized how powerful social media companies like facebook are, as they pretty much know everything about their users. A few celebrities started deleting their facebook accounts in protest and the hashtag delete. Facebook was trending for a while, despite the public outcry, very few people cared enough to actually delete their facebook accounts and their monthly active users continued to increase.

It looked like zuckerberg dodged, a bullet and they could go back to their business as usual, but as the situation was unfolding, apple was carefully monitoring. The chaos from the sidelines apple makes its money by selling physical products to consumers, because they are not an advertising platform. They have no need to collect copious amounts of consumer data like facebook. Does they solve facebook's vulnerability and decides to go on the offensive? In 2020 they announced plans for a new software update which make the idfa tracking code opt in they'll proactively.

Ask you if you want to allow the given app to track you using idfa, seeing as the consumer does not get any direct benefit from the tracking the vast majority of them will say. No, it's pretty obvious that this update was targeted at facebook, tim cook, even tweeted, a screenshot of an apple prompt with facebook asking permission to track. You apple started an aggressive marketing campaign depicting how advertisers like facebook can track your data and how you can turn this. All off with the new ios updates, things were getting desperate for zuckerberg.

His entire empire was built on collecting user data. Apple's plans to limit this ability represented an existential threat in a desperate attempt to fight back facebook started sponsoring full-page ads in newspapers. Saying that apple's privacy changes would hurt small businesses who rely on facebook ads to reach customers, but given how negative public sentiment had turned against facebook, their campaign never really had a chance of success. It was pretty clear that apple had won the battle they successfully painted facebook as a greedy company that wants to steal all of your data apple was standing on the side of the consumer to protect privacy.

Apple's new idfa policy is a crushing blow to facebook. In the most recent earnings call facebook cfo david wenner, said they expected to cost them 10 billion dollars of lost revenue in 2022, as their ads will be less targeted and they won't be able to charge advertisers. As much to put that into perspective, facebook made 40 billion dollars of net profit in 2021, the 10 billion dollars in lost revenue will almost completely fall to the bottom line and cut their profits by 25 percent. Interestingly, this is almost exactly how much their stock price felt when they announced this news.

It's probably not a coincidence that in 2021, after apple announced their idfa policy, facebook rebranded their corporate name to meta and said they would invest 10 billion dollars to create a metaverse. As it stands now, facebook is almost entirely beholden to apple and android to reach its users. This puts them in a very vulnerable position. Zuckerberg envisions a new world where people live their day-to-day lives in a virtual reality.

Metaverse, you can go to work, meet with friends and play video games all within the metaverse, so there's no need to use an apple or android device. They've recently released horizon worlds, a social platform which makes use of their oculus virtual reality headsets, while they haven't stated exactly how they plan to monetize it. They could eventually start placing ads within the metaverse and, given that facebook controls the whole thing, there will be no restrictions on how much data they will collect. As of this past november, facebook has sold roughly 10 million of their latest generation.

Oculus quest 2 headsets. But that's little more than a rounding error compared to the 3 billion monthly active users that they have across their social media. Apps facebook disaggregates their financial results into two categories. Family of apps includes facebook, instagram, messenger and whatsapp.

Reality. Labs includes oculus their portal tablet, as well as their metaverse investments in 2021. Reality labs generated 2.3 billion dollars in sales, which is less than two percent of their total revenue, and while their family of apps is highly profitable, reality labs made an operating loss of more than 10 billion dollars, since they changed their name to meta last fall their Stock has fallen 25, which wiped out 220 billion dollars of shareholder value. It looks like people think the metaverse is going to be a giant flop and that the company will waste tens of billions of dollars chasing this pipe dream.

Despite the headwinds meta is still the largest social media company in the world, with 3 million monthly active users and who knows maybe 5 years from now, you'll be watching videos like this one from within zuckerberg's medivers, alright, guys that wraps it up for this video. Do you think apple's new privacy regulations will mark the end of facebook? Do you think their metaverse will ever be mainstream? Let us know in the comments section below and once again make sure to check out karma link in the description below. As always. Thank you.

So much for watching and we'll see in the next one wall, street millennial signing out.