Facebook Dives Headfirst Into The Metaverse

Yesterday, after keeping the social media world on edge all week, Facebook FB CEO Mark Zuckerberg finally made the announcement. For the first time since 2005, the Facebook parent company will be undergoing a name change. And it’s not just the moniker that Zuckerberg wants to rebrand, but the future and focus of his company from bottom to top. 

So, what does this mean for Facebook and its investors?

Unpacking Facebook’s Rebrand

The new name of Zuckerberg’s teenage brainchild is Meta, he announced at the annual Connect event. The shift represents the company’s ambitions to forge ahead as a leading founder and funder of the metaverse. 

“From now on,” he noted in a blog post on the day, “we will be metaverse-first, not Facebook-first. That means that over time you won’t need a Facebook account to use our other services.” Already, Zuckerberg has taken steps to establish ownership of Meta by claiming the Twitter handle @meta and the domain name meta.com. 

Zuckerberg also outlined his attitude and strategy surrounding the coming changes. To start, while the corporate structure won’t change, Facebook will update its financial reporting to include two segments: Family of Apps and Reality Labs. Facebook will also trade under a new stock ticker, MVRS, beginning 1 December.

But unlike the founders of Google GOOG when they rebranded their baby in 2015, Zuckerberg has no plans to give up his top spot. Instead, he’ll maintain his ironclad grip on Facebook through his majority voting shares, control over the board, and comradery with top-tier executives.

What is “The Metaverse”?

The metaverse – at least as we imagine it now – is an expansive, immersive internet plucked straight from the pages of a sci-fi novel. 

According to Zuckerberg, he wants the metaverse to hinge on the “feeling of presence” in a future where “you will be able to teleport instantly as a hologram” anywhere you desire. The ultimate goal, of course, is to do “anything you can imagine” beyond the limits of today’s technology. 

However, Facebook’s founder acknowledges that one company can’t create or control the metaverse. Instead, Zuckerberg intends to play a crucial role in developing the technologies, tools, and platforms that will bring the metaverse to life – all the while “weav[ing] these technologies through [Facebook’s] social media apps.” 

Suspect Timing

If you’re curious about the timing of Zuckerberg’s announcement, you’re not alone. 

Currently, Facebook is embroiled in controversies and Congressional probes after whistleblower Frances Haugen stepped forward with thousands of pages of internal documents showing just how much Facebook knows about the harm it causes – and how far the company will go to underfund and ignore efforts to address the outcomes of its actions. 

On Monday, the SEC released new information to Congress highlighting Facebook’s concern about its aging user base. The documents also outlined the company’s tiered ranking system for which jurisdiction receive enhanced election protections. 

The latest controversy has only fueled the FTC’s desire to split the company as public trust falls apart. Moreover, the situation has further soured the brand for Facebook’s critics, who suggest Zuckerberg’s decision reads as a ploy to deny culpability while continuing to captain his ship. 

But Zuckerberg denies those claims, stating that the media frenzy has “nothing to bear on [the rebrand] … If anything, I think that this is not the environment that you would want to introduce a new brand in.” He also notes he’s been considering the name change since acquiring Instagram in 2012, though the final decision wasn’t made until about six months ago. 

Making the Obvious Comparison

Thus far, speculation and analysis of the situation have focused on the comparison between Google’s 2015 rebrand and Facebook’s future. 

Way back when, Google caught the tech world off guard when it announced that the company’s many subsidiaries and projects would reorganize under the umbrella company Alphabet. Each company would have its own CEO, goals, budgets, ventures, and profit-taking models. 

At the time, cofounders Larry Page and Sergey Brin helmed Alphabet, with Sundar Pichai tapped to run Google’s core business. (Both Page and Brin stepped down in 2019, leaving Pichai to run Alphabet and Google.) 

Google’s advertising services remained front and center. What Google really got from the decision was investor approval. 

While Wall Street was skittish about Google’s penchant for invention and innovation, they were far less critical of one company holding many distinct businesses. This allowed investors to feel confident in their bets while Google carried on much the same as it had before. 

Comparing the Two Giants

When it rebranded, Google wasn’t just a search engine; it was a tech conglomerate that dabbled in everything from fiber optics to medical research. But after splintering, Google thrived, capitalizing on its increased flexibility to scale and become more transparent with investors. 

And if its stock performance is any indication, the rebrand was a success. In the year following its rebrand, Google’s Class A stock rose from $664 to $793, with current prices sitting around $2,900. And in January 2020, Google became the fourth U.S. company to reach a market valuation of $1 trillion. 

When it comes to Meta, the brand will split into its component platforms – Instagram, Facebook, and WhatsApp – and its Oculus line. But unlike Alphabet, which never intended to become a consumer brand, Meta very much wants to be a household name, permeating every device, decision, and interaction. 

Additionally, while Page and Brin largely scaled back their influence over Google during the rebrand, Zuckerberg is intent on maintaining control. This could set up the company for failure despite its massive budget and user base. 

But as Meta aims to pioneer the future of the internet, much as Google did 23 years ago, that could still have major implications for its bottom line – and the world. 

How Do Big Companies Usually Fare Following a Rebrand?

Of course, Google and Facebook are far from the only companies to alter their brand identity. In fact, many major players have rebranded in the last two decades, from new logo designs to new corporate missions. And while the process comes with a few bumps, if the brand is large, resilient, and smart enough, the long-term results often turn out favorably.  

For instance, McDonald’s MCD has been on a campaign to shift public consensus from “cheap fast food” to “premium fast food” for the past few years. They dropped their iconic slogan, overhauled their logo, and rotated in customized deals to appeal to more customers. And in the past five years, minus the occasional hiccup, their stock price suggests that they’ve succeeded. 

To bring the topic back to tech, Microsoft MSFT is currently undergoing rebranding efforts, from its Bing search engine to the Xbox network. With so many changes occurring at once, you might think investors would balk at buying – but Microsoft’s stock price has largely been on the rise since the early 2010s, with no end in sight. 

Facebook’s Declining Ad Revenue 

Amidst its rebranding efforts and Congressional scrutiny, Facebook also faces some financial turbulence. The company reported on Monday that revenue rose 35% to $29 billion in the most recent quarter, under expectations of $29.57 billion. 

The missed expectations can be attributed to Facebook’s ad revenue, which comprises the bulk of its income. Revenue growth slipped from 52% to 35% – a loss that Facebook blames on Apple’s AAPL privacy updates. 

Essentially, Apple’s App Tracking Transparency makes it easier for users to control when advertisers follow them around the digital world. When a Facebook ad leads to a sale outside Facebook, the company can’t track it, which leads to depressed conversions. And though Facebook is confident that it can recover some of its reporting clarity by the year’s end, long-term solutions will likely take years to successfully implement. 

In the short-term, this could be indicative of more troubles to come, particularly as shoppers move back toward in-person shopping and Facebook bleeds money into fixing a plethora of problems. But it’s unlikely Facebook’s earnings will be down for long, as the company has repeatedly proved resilient in the face of adversity. 

Key Takeaways 

As an investor, a company’s rebrand often comes with anxieties around stock price, time horizons, and the stability of an investment. For smaller companies, a rebrand may come with a few months followed by success or a crash. 

But for companies the size of Facebook, rebranding often works differently. When looking at other large companies who’ve rebranded, a successful pivot toward new purpose can benefit consumers and shareholders alike – especially on a long enough time horizon.  

That said, Facebook’s situation comes with several complexities, such as Zuckerberg keeping the helm even as the company fails to address legitimate concerns. And now they announce new, expensive ventures, even as this month’s growth shortfall revealed a crucial vulnerability in their business plan. 

None of which does anything to arrest the market’s flagging confidence in Meta. As more information arrives, and the scandals blow over – or worsen – investors should remember that a rebrand is not a pivot, and until we see what game Zuckerburg is playing, you might be glad you didn’t place a bet.

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