Never Mind the Metaverse. Facebook Needs to Solve Its TikTok Problem.

(Bloomberg Opinion) -- Facebook parent Meta Platforms Inc. has suffered a string of public challenges in the past year as regulators intensified their scrutiny of the company and Apple rolled out a privacy feature that crimped a key source of user data. But as Meta's wobbly revenue outlook made clear Wednesday, the company is facing yet another threat to its business. The social media landscape seems to be rapidly shifting toward short-form video, a space dominated not by Facebook but by TikTok.

Meta warned in its earnings results that revenue for the current quarter would come in at about $27 billion to $29 billion, well below the $30.25 billion median estimate of analysts surveyed by Bloomberg. Meta also reported that user numbers for the quarter ended in December had stagnated. The weak showing sent Meta's shares plunging more than 20% in after-hours trading.

While investors were braced for signs of slowing user growth, they were taken aback by the extent to which the company expected to lose out on ad dollars as competitors such as TikTok gain ground. Meta's Instagram platform has its own short-form video feature called Reels, but TikTok, owned by ByteDance Ltd., dominates the space for short user-generated videos. Meta is not only losing consumers to TikTok but also seeing lower revenue from ads destined for the shorter format on its own apps.

There have been signs for a while that Meta was grappling with how to deal with the TikTok threat and consumers' evolving tastes. Last summer, Instagram chief Adam Mosseri said the platform planned to move beyond its emphasis on photo-sharing and embrace video, citing TikTok's success. On the earnings call Wednesday, Chief Executive Officer Mark Zuckerberg said the company was focusing on Instagram Reels due to TikTok's rising popularity.

The growing competition from TikTok compounds the uncertainty surrounding Meta's future. Zuckerberg has been adamant that the company's long-term success depends on the metaverse, his vision of a virtual world where consumers can play, socialize and work. He is spending accordingly. Results released Wednesday show Meta has lost more than $20 billion over the last three years on projects tied to the metaverse.

The massive financial commitment toward an idea that remains largely theoretical has created uncertainty about Meta's trajectory. Yet many investors have been willing to accept the huge expenditures as long as they knew the core social-media business would continue to pump out billions in advertising revenue. They learned today that the revenue stream might not be as dependable as they had thought.

More From Writers at Bloomberg Opinion:

Meta's Mediocrity Is the Message: Ben Schott
Facebook's Algorithms Are Too Big to Fix: Cathy O'Neil
Facebook's Crypto Bust Is a Metaverse Red Flag: Parmy Olson

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Tae Kim is a Bloomberg Opinion columnist covering technology. He previously covered technology for Barron's, following an earlier career as an equity analyst.