Waiting for Meta and Tencent to reach their previous highs? Wait longer...
Meta (META) reached its all-time high of $384.33 on September 1st, 2021, while Tencent's (SEHK:700) all-time high was $705.90 on February 18th, 2021.
Since then, Meta and Tencent have fallen from the highs by 45% and 55% respectively.
The key reasons for their fall differ.
Meta's recent decline can be attributed to several factors. Firstly, Apple's privacy policy changes have affected Facebook's ability to target users, resulting in advertisers spending less due to decreased effectiveness. Secondly, the growing popularity of TikTok has threatened Facebook and Instagram's dominance in the social media space. Finally, Meta's heavy investment in the metaverse has yet to gain widespread acceptance, as many people are not yet ready to migrate to this new form of online experience.
Tencent's recent decline, on the other hand, can be attributed to a combination of regulatory issues and external factors. Firstly, to comply with regulations, Tencent has had to impose restrictions on minors to limit screen time. Additionally, game approvals were suspended for a period of time, which affected the company's revenue. Finally, the Covid lockdowns caused a slowdown in advertising spend and a decrease in transaction volume for its payment platform, WeChat Pay.
The recent decline in share prices for both Meta and Tencent can be considered justifiable, as it reflects a slowdown in their growth fundamentals. Interestingly, both companies coincidentally experienced a 1% decline in their revenue in FY2022, further supporting the notion that their recent stock price declines are tied to underlying business performance.
Meta and Tencent share similarities in their dominant positions within the communication industry, with Meta owning WhatsApp and Tencent's WeChat being a popular app in China. Both were considered to be part of the exclusive big tech club in both the East and West, with seemingly impregnable moats due to their network effects.
However, both companies now face a common challenger in Bytedance, whose social media platforms Douyin and TikTok have grown rapidly and posed a significant threat to Tencent and Meta's dominance in the industry. It is surprising how quickly these new social media platforms have gained traction and posed a threat to Tencent and Meta's dominance in just a few short years.
The fact that Bytedance has reported over $80 billion in revenue for its FY2022 while Tencent achieved only $81 billion is concerning, given that Tencent has built its business over several decades - Tencent shouldn’t be surpassed so easily.
Although Meta still has a higher revenue of $117 billion in 2022, it may not remain ahead for long. Bytedance now has an advantage with a presence in both the Chinese and international markets, while TikTok alone generated only $11 billion in revenue, indicating that 86% of Bytedance's revenue came from China. Given the rapid growth of both markets and China's reopening, it is possible for Bytedance to surpass Meta's revenue in a short period, especially if it maintains its current growth rate of 30% from 2022. Bytedance is even expected to surpass Tencent's revenue this year.
The intense competition in the social media space poses a threat to the valuation of both Meta and Tencent.