Weekly Digest: Zuckerberg’s Facebook Empire Is Crumbling

Welcome to your Sunday digest…my breakdown of the things we’re thinking about and talking about in the Global Intelligence world. 

We begin this week with Facebook’s collapsing house of cards… 

This has to count as one of the worst weeks in the history of Zuckerberg’s empire. 

First, the company reported its quarterly earnings results. It wasn’t good news.  

Facebook, which has rebranded as Meta, saw a quarterly revenue drop from a year earlier…the first time it’s ever reported an annual decline like this.  

But it gets even worse… 

Since 2017, Meta’s share of global digital ad revenue has increased from 17% to 22%, according to data from eMarketer, but most of that growth has come from Instagram, which Meta owns. Facebook’s share has actually declined over that period.  

Now, there’s evidence that Instagram is losing its luster. 

Recently, Meta executives have been trying to update Instagram to make it more video-focused, so it can challenge the growing dominance of TikTok. But this had led to a user backlash. 

This week, Kylie Jenner and Kim Kardashian, two of the most popular influencers on the platform, started a campaign to “Make Instagram Instagram Again.” 

Meta responded to the campaign by admitting its updates to the platform weren’t going well…leading to concerns about its long-term future. 

And there was yet more bad news for Meta… 

Also this week, the Federal Communications Commission filed an injunction to block Meta’s efforts to acquire Within, a virtual reality company.  

Facebook was rebranded as Meta to highlight the company’s goal of dominating the metaverse. (The metaverse is the internet in 3D. Instead of staring at a computer monitor or smartphone, we’ll view the internet of tomorrow in three dimensions using virtual reality glasses and augmented reality technology.) 

Facebook planned to achieve its metaverse goal by buying up younger, nimbler, hungrier rivals…the same way it bought up Instagram and WhatsApp and Oculus and lots of other competitors that could potentially challenge it.  

It seems the FCC has finally decided to block these monopolistic practices… 

And honestly, if tired, old Facebook can’t buy up young, innovative companies, it has no hope of emerging as a winner in the metaverse. 

One week…three very bad stories for Facebook.  

Zuckerberg’s empire is crumbling. 

 
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Next up, it’s been a bad year for Asia’s wealthiest woman… 

Since the start of 2022, the net worth of Yang Huiyan has plummeted from $24 billion to $11 billion, according to the Bloomberg Billionaire Index. 

The reason is China’s rapidly imploding real estate market. 

Yang is the head of Country Garden Holdings, China’s largest property developer in terms of sales. The company’s stock has fallen by more than 50% since the start of the year.  

It’s a common story across China’s real estate sector. 

As we’ve reported here and in our monthly Global Intelligence Letter, China’s housing sector is facing its biggest crisis since the country’s modern economic emergence. 

For decades, real estate had boomed in China, serving as a major engine of economic growth. This apparent never-ending cascade of profits led many of the country’s developers to borrow vast sums to buy land…more than most of them could ever hope to repay.  

This has raised huge concerns about the financial stability of the country’s property firms…not to mention the banks that loaned them the money. 

The Chinese government has attempted to tackle this debt problem by introducing strict new borrowing rules. This has had the effect of preventing many private developers from accessing financing…causing a wave of debt defaults. 

Simultaneously, buyer demand has weakened amid a slowing economy and frequent COVID lockdowns.  

China operates an unusual property system in which buyers pre-purchase apartments before they are built, which means people begin mortgage payments before receiving delivery. Now there are fears that many properties will never be finished, so countless Chinese homebuyers are refusing to pay their mortgages until their apartments are completed. 

This “mortgage strike” is putting off potential new property buyers. 

So, banks and developers are getting hit from all sides. 

Country Garden is not immune from these debt problems. On Wednesday, the developer said it would sell stocks at a nearly 13% discount to raise $361 million to pay offshore debts. 

China’s government partly engineered this real estate crisis to tackle developer indebtedness and give public sector companies greater control of the real estate market. But now, there is evidence that it has punished the sector too hard, too fast…leading to a collapse in consumer confidence. 

This could push China into an economic downturn, which would have massive implications for the global economy, including the U.S. 

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Finally, speaking of an economic downturn, we need to talk about the “R” word. 

We learned this week that economic growth in the U.S. fell by 0.9% in the second quarter. This was the second consecutive quarter of contraction, following a 1.6% drop in Q1. 

This, in turn, led to a debate about whether the U.S. is or is not in a recession. 

Here’s where I stand: We are in a recession. 

Two consecutive quarters of declining growth figures is, by definition, a recession.  

In fact, I wrote early this year that we’d likely be in recession by end of summer…and here we are. 

The Federal Reserve can parse and dissemble all it wants. But the writing on this particular wall is pretty darn clear: The U.S. economy is backsliding.  

And soon enough, the Fed is going to have to curtail its campaign to raise interest rates. Otherwise, the recession is going to tip into something much worse. 

That brings us to the end of this week’s digest. Many thanks for being a subscriber. And if you have any feedback or questions, reach out through the contact form on the Global Intelligence website. 

Enjoy the rest of your Sunday.