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To put it mildly, Meta Platforms' (FB) first quarterly report since changing its name from Facebook was a disappointment, especially since Alphabet's (GOOG) impressive 4Q21 results, announced earlier this week, lifted expectations for a strong showing. With FB missing EPS estimates and issuing downside 1Q22 revenue, the divergence in its performance versus that of GOOG is quite stark and raises a red flag for Snap (SNAP) and Pinterest (PINS). Those two social media companies, which are slated to report earnings tonight, are facing many of the same issues that undermined FB's Q4 results and outlook, such as:

• The privacy changes to Apple's (AAPL) iOS are still weighing heavily on FB's advertising business. Ad targeting accuracy diminished significantly because iOS users can now opt out of allowing apps to track their online activities. Consequently, the direct response ads that FB and SNAP rely so heavily on have lost some appeal to marketers.
  • To put this problem into perspective, FB estimates that its reduced ability to provide targeted advertising will cost it $10 bln in revenue this year.
  • Following GOOG's upside report, there was hope that the impacts of the iOS modification had lost some potency. That company specifically noted that strength in both brand and direct response advertising fueled YouTube's 25% growth.
  • It's clear now, though, that GOOG is taking market share away from social media companies. Unlike FB and SNAP, the company doesn't rely upon third parties to accumulate tracking data since it stores a massive amount of user data in its own data centers.
• Perhaps most troubling is FB's admission that it is facing intensifying competition for people's time, particularly from TikTok. This headwind is evident in FB's metrics -- Facebook monthly average users (MAUs) were flat on a sequential basis at 2.91 bln.
  • FB's answer to TikTok's highly popular short-form video platform is Reels, but the company is still working on monetizing that product. Until FB can improve video monetization rates, ad impression pricing will continue to soften.
• FB's view regarding the health of the advertising market is vastly different than GOOG's. Recall that GOOG attributed its growth to broad-based strength, with the retail space standing out. In contrast, FB cited global supply chain disruptions, labor shortages, and inflationary pressures as key factors that slowed advertising spending.
  • The divergence may be partially explained by the differing makeup of FB's and GOOG's customer bases: namely, FB has high exposure to SMBs that have less of a cushion to deal with rising costs. In difficult times, the marketing budget is often scaled back first.

The main takeaway is that FB is taking hits from multiple sides and that relief isn't anticipated in 1Q22. In fact, the company expects the iOS-related headwinds to increase while lapping a period of strong demand from FY20. During this storm, FB continues to hammer away at building out the metaverse, which CEO Mark Zuckerberg contends will be a game-changing technology. However, full functionality of the metaverse may be years away, making it paramount for FB to turn its bread-and-butter advertising business around.