Facebook, Instagram, and WhatsApp parent Meta Platforms (FB +0.23%) has been crushed by Apple. The company said iOS user-privacy changes could reduce its revenue by about $10 billion in 2022 (about 8.5% of 2021 revenue). That news has sent Meta stock down some 40% since CEO Mark Zuckerberg and company released their final 2021 earnings update.
Meta isn't the first company that has been squeezed by Apple, and it won't be the last. Other mega-corporations that have been hit when Apple has flexed its muscles in the past include chip-design giant Qualcomm (QCOM +0.20%).
But as Qualcomm has demonstrated in recent years, a little stress can make for a better long-term business. Meta could emerge a much stronger company in a couple of years thanks to Apple, too. Here are three lessons Meta shareholders can learn from Qualcomm.
Image source: Getty Images.
1. Diversify into new revenue ex-Apple
Among the tech titans -- Apple, Microsoft (MSFT 0.60%), Alphabet (GOOGL 0.41%)(GOOG 0.20%), and Amazon (AMZN +2.05%) -- Facebook has historically had the least meaningful consumer-hardware business. It has tried to make forays into computing devices that bridge its social media software dominance, like the Facebook Portal smart-home display. To date, these efforts have produced little in the way of financial results.
That is, until the Quest 2 arrived on the scene as a breakaway hit in virtual-reality (VR) gaming. The metaverse and Meta's bet on developing VR hardware will be important growth initiatives as it diversifies away from its aging ad business.
To be clear, Meta's advertising empire is only being squeezed by Apple; it isn't losing its ad revenue business. A similar situation has happened to Qualcomm as well after years of legal back-and-forth with the iPhone company over mobile chip patents. But Apple is far from the only player in the massive mobile device industry. Along the way, Qualcomm doubled down on other areas like its chip designs for Android (which dominates the global landscape), and has designed circuitry for industrial equipment, mobile-network infrastructure, and the like.
So Qualcomm's spats with Apple have helped it diversify into new revenue lines. It's forecasting a steady decline in iOS sales in the coming years, but business overall should still grow by low double-digit percentages.
Meta can do the same. In fact, it is making good progress outside of ads, and the recent issues with Apple clamping down on device activity-tracking give all the more impetus for Meta to continue building out a next-gen mobile computing platform of its own.
2. Big acquisitions aren't the answer
In 2018, Qualcomm abandoned its attempted takeover of auto and industrial chipmaker NXP Semiconductor (NXPI 0.63%). While a blockbuster acquisition would have dramatically accelerated Qualcomm's diversification attempts, it was met with some regulatory scrutiny because of its already dominant position as a mobility technologist.
Instead, Qualcomm opted for a more organic growth approach and launched a $30 billion share repurchase plan. Today, it has a meaningful presence in the Industrial Internet of Things and automotive, and its share price is up 175% over the last three years (helped in no small part by those share buybacks).
It's no secret Meta has also met plenty of regulatory scrutiny in recent years. It has a massive war chest totaling $48 billion in cash and short-term investments, and another $6.8 billion in long-term investments. That's tremendous purchasing power, but a blockbuster takeover is highly likely to be shot out of the sky by regulators.
Instead, Meta is investing heavily into more organic growth. And like Qualcomm, it's repurchasing stock at a torrid pace ($44.5 billion in 2021 alone). It will take time for these efforts to pay off, but I believe this is the right move for Meta rather than going after a big acquisition that is sure to attract unwanted attention.
3. Focus on the evolution of social media
Mobile chips aren't just about smartphones anymore. Qualcomm's same chip technology that made the smartphone a powerful, efficient computing system that can ride around in our pockets is now being applied to all sorts of new devices, including Meta's Quest 2 VR headsets. Put another way, Qualcomm has evolved with the times and is more relevant than ever.
The same can be the case for social media. Just as mobile chips are more than just for smartphones, social media can do more than help us stay in touch with friends and family -- as it earns advertising revenue along the way. Meta has already deeply ingrained itself into e-commerce for small businesses. Millions around the globe use Facebook, Instagram, and WhatsApp to engage with customers every day. There's big potential here beyond ads, like digital payments and other financial services, social media site-building and management, and video.
Social media will continue to evolve. Meta is still highly profitable, and with billions of monthly social media app users, it is in prime position to adapt with the times. Things appear dire right now, but the same was the case for Qualcomm at times in the mid-2010s as well. But Qualcomm charted a path amid its drama with Apple and is now a stronger business as a result. Meta can do the same.
