What Happened to Social Media?

It's been a terrible year for social media companies. The latest bad news came last week when Snapchat parent Snap said it was cutting 20% of its workforce and re-focusing on its core business.

Snap stock has tumbled 86% over the last 12 months, while Facebook-parent Meta Platforms is down 58%. Pinterest is down 61%. Twitter has held up a bit better, down just 40% over the last 12 months, mostly because there's still a chance Elon Musk will be forced to follow through with his agreement to buy the company. 

In Barron's Up and Down Wall Street this weekend, I took a step back to understand what's gone wrong with a business that has changed the world and once held much promise: 

Most of Wall Street has been caught flat-footed by social media’s struggles. But not everyone. Back in 2017, Brian Wieser at Pivotal Research downgraded Facebook’s stock, making him just one of two analysts with a Sell rating on the shares.

“With every passing year, digital advertising is closer to a point where the market is saturated,” Wieser wrote in his downgrade note in July 2017.

At the time, Facebook traded at $172. The stock—under its new Meta Platforms (META) name—closed on Friday at $160, meaning that investors who bought Facebook shares five years ago, and held on, have lost money. Over that same period, you would have been better off owning IBM (IBM), which has itself been dead money but at least paid a dividend. Procter & Gamble (PG), Ford Motor (F), and McDonald’s (MCD) are among the stocks that have easily outpaced Facebook’s five-year price appreciation.

I spoke to Wieser this past week about what everyone got wrong and what lessons we can learn from the miscalculations.

“What I think much of Wall Street and, frankly, most of the companies themselves missed is that they are fundamentally advertising businesses,” Wieser says.

Social-media companies became just one more example of start-ups claiming that technology could alter the basics of business. Think WeWork in real estate, Teladoc Health (TDOC) in medicine, and Peloton Interactive (PTON) in fitness. As we’ve learned over the past year, market realities eventually still trump technology.

You can read the rest of my column here