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Meta Platforms , the former Facebook, has come under heavy fire from Congress, regulators, and even its own users, but there has been nothing like the crisis it now faces. Its core business is decelerating, and investors are questioning whether Meta can ever get back its money-minting mojo.

The company’s superpower—its ability to precisely target ads on both Facebook and Instagram based on online consumer behavior—has been badly disrupted. A decision by Apple (ticker: AAPL) last year to favor consumer privacy over ad targeting now makes it far harder to track iPhone user activity across the web.

Facebook was “sitting on this treasure trove of people’s preferences,” says Steven Tadelis, an economics professor at the Haas School of Business at the University of California, Berkeley. “They know...where they are, their demographics, their age, friends, and education. And they knew you visited shoe websites, so now shoe ads are everywhere on your news feed.”

Nearly one out of every four dollars spent on digital ads is on a Meta site. Only Alphabet ’s (GOOGL) Google is bigger. But Apple’s changes, Meta (FB) has said, will mean that 2022 revenue will shrink by about $10 billion, or about 9% of 2021’s revenue. Shares of Meta have tumbled 51%, to $188, since early September on worries over advertising. At the same time, Meta is facing a challenge from TikTok and placing an enormous bet on an immersive version of the internet known as the metaverse.

Can CEO and co-founder Mark Zuckerberg turn his social-media juggernaut around? Pressure will certainly grow this coming week when Meta reports first-quarter results, which are expected to underscore the challenges the company faces.

Barron’s spoke at length to top Meta executives who are helping spearhead the company’s responses to the ad changes, the threat from TikTok, and the megabet on the metaverse. While the stock looks statistically cheap, addressing these issues will take time, the TikTok threat is considerable, and the payoff from the metaverse is many years away. The company may never be able to track users like it once did — a critical component for its core advertising business—and one of the senior executives acknowledged there is no easy fix. With Zuckerberg still holding well over 50% voting control of the company, there isn’t likely to be any pressure from activist investors—the changes needed at Meta will need to be self-propelled.

The Ad Problem

For almost a decade, Facebook provided investors with spectacular returns, driven by growth in the market for targeted online advertising. From its debut in the public market at $38 a share in May 2012, through its peak in September at $382, the stock appreciated 10 times, more than double the Nasdaq Composite’s gain over the same span.

Revenue expanded more than 3,000% from 2011 to 2021, reaching $118 billion last year—almost all of that from targeted advertising. In contrast, Alphabet over the same period grew revenue 580%, and Apple, a relatively paltry 238%.

Now, Meta’s decadelong ad-growth story has stalled. The company’s market cap, which peaked last year at $1.1 trillion, is down to $511 billion. Much of that reflects an astonishing $251 billion market cap lost the day after Meta reported fourth-quarter results—the biggest one-day loss of value for a public company ever.

The primary issue was Meta’s outlook for the March quarter. It projected revenue of $27 billion to $29 billion, well shy of the previous Wall Street consensus forecast of $30 billion. When Meta reports this coming week, it will likely be its slowest-growth quarter ever.

The soft outlook largely reflects fallout from Apple’s adoption of “app tracking transparency,” or ATT, a policy that makes it harder for Facebook and other ad sellers to target ads based on what people are doing on other iPhone apps and websites. Apple has defanged a feature on its platform known as IDFA (Identifier for Advertisers), which assigned a unique designation for every device, making it easier to track visits to various apps and websites.

With the adoption of ATT, apps running on iPhones now must ask users for permission to be tracked. Most people say no. Apple’s move significantly complicates both ad targeting and “attribution,” the ability to connect consumer exposure to ads with later purchases.

The issue Meta and its customers face is that delivering targeted ads boils down to understanding consumer intent. When you type “HOKA running shoes” into the search box on Google or Amazon , you’ve made your intentions clear.

Facebook’s ad mission is more complex: Encourage purchases by intuiting what you might be nudged into buying.

Maybe you downloaded a running app, or searched for information on marathons. Ergo, HOKA ads in your news feed. Apple’s privacy crusade is making it far more difficult for Meta to precisely target potential customers that way.

What can Meta do now? The solutions to the ad-targeting issue will be complex, require a joint response from the broader advertising community, and will take time to develop, says Dennis Buchheim, vice president of advertising ecosystem at Meta.

Going forward, he says, the company will rely on a combination of a more limited set of “consented data”—people who opt in to tracking—along with “first party” data from ad buyers and aggregated, anonymized, de-identified data, based on ZIP Code or other characteristics. Buchheim says the long-term solution will require collaboration with other industry players, and is likely to be iterative.

“There won’t be an ‘Aha!’ moment when everything is solved,” he says.

Meta isn’t the only company affected by Apple’s privacy changes, but it has the most to lose, and it is taking the biggest hit. Ad tech firm Lotame estimates the combined impact of Apple’s privacy changes to targeted ad revenue in 2022 will be close to $16 billion—including a $12.8 billion hit to Meta (which is more than the company has projected)—with smaller impacts on Snap (SNAP), Twitter (TWTR), and Google’s YouTube.

Apple’s policy change, says Berkeley professor Tadelis, who has worked for both Amazon.com (AMZN) and eBay (EBAY), “is a big blow” to Meta’s ability to target. “The question is whether they can find workarounds,” he says. “It’s unclear to me.”

The consensus on Wall Street is that Meta’s ad-targeting problem for now is getting worse, with many advertisers shifting at least a portion of their ad budgets to other platforms that don’t rely on third-party tracking data, including Google and Amazon.

Compounding the problem, Google has announced plans to take similar privacy measures on Android phones—and next year, Google will start phasing out third-party cookies on its Chrome web browser, removing another valuable signal for ad targeting.

RBC Capital Markets analyst Brad Erickson wrote in a recent research note that checks with ad agencies convince him that Meta will report “another rocky quarter,” with some small-business ad dollars shifting to Google, LinkedIn, and social-media “influencers,” as well as TikTok.

The TikTok Challenge

TikTok poses a serious threat to Meta. The wildly popular short-video app, owned by China-based ByteDance, has attracted a huge and growing audience. Zuckerberg called out the TikTok threat repeatedly on Meta’s latest earnings call.

Meta has a TikTok clone called Reels, which made its debut on Instagram in 2020 and Facebook in 2021. Clicking on the Reels link on either app brings up a series of short, vertically oriented videos that you can casually flick through, exactly like TikTok. It’s a nearly precise copy.

Tessa Lyons-Laing, Instagram’s director of product, says the focus on Reels reflects a growing consumer interest in short-form video, rather than a specific response to TikTok—but there is no question that in TikTok, Meta faces a formidable foe in the battle for consumer attention.

Lyons-Laing points out that Meta has a long history of making major transitions in its business, shifting from desktops to mobile just over 10 years ago and launching Facebook Stories in 2017 to compete with Snapchat in ephemeral content.

But TikTok is a beast. With more than one billion users, it is the toughest competitor Facebook has ever faced—and it is on fire. The research firm eMarketer projects that TikTok’s ad business this year will reach $11.64 billion, up 200% from $3.88 billion last year—and about equal to Wall Street estimates for 2022 revenue for Twitter and Snap combined.

The firm estimates that by 2024, TikTok’s ad revenue will reach $23.6 billion, nearing parity with YouTube.

“Advertisers want to reach a passionate, dedicated audience, and TikTok can deliver that,” says Insider Intelligence principal analyst Debra Aho Williamson.

Reels is by far the fastest-growing portion of Meta’s platforms. Morgan Stanley estimates that the feature will account for 15% of time spent on Facebook and Instagram by the 2023 fourth quarter, up from 6% recently. But the company needs to pick up the pace on monetizing Reels, which by Meta’s own admission generates less revenue per unit of time spent than the news feed and stories elements of Facebook and Instagram.

BofA Securities analyst Justin Post estimates that the shift of consumer time on the platform to Reels could be a $2.5 billion headwind to Meta’s results this year, although he thinks that could shift to a tailwind by 2024 as monetization improves.

Loop Capital Markets analyst Alan Gould, who pulled his Buy rating on Meta shares in February, is more skeptical. He contends that the economics of creator-driven content “will not compare” to the higher margins from user-generated content.

“The shift to short video is a move away from the largest and most durable competitive moat for Facebook,” he wrote in a research note.

The Bet on the Metaverse

Can hope be found in the metaverse? That part of the business, formally called Reality Labs, had $2.3 billion in revenue in 2021, most of that from Oculus virtual-reality headsets. The unit accounted for less than 2% of Meta’s overall revenue, with the rest coming from the core business.

Reality Labs lost $10.2 billion last year, boosting its red ink over the past three years to more than $21 billion. Zuckerberg expects Meta to spend more than $10 billion on the project this year, with accelerated spending in the years ahead. Aside from Oculus headsets, the potential payoff is far in the future—Zuckerberg has said it might take 15 years to realize his vision.

Just how big the opportunity might be is anyone’s guess. In an interview, Vishal Shah, Meta’s vice president of metaverse, pointed to Zuckerberg’s previous comments that the company expects more than one billion people to be spending time in the metaverse by 2030, together driving hundreds of billions of dollars of transactions in virtual goods.

“If you’re in the metaverse every day, then you’ll need digital clothes and digital tools,” Zuckerberg said on the company’s third-quarter earnings conference call in October. At the recent South by Southwest conference, Zuckerberg said the metaverse could help create “many millions of jobs” for creators of virtual goods.

Finding a clean definition of the metaverse turns out to be harder than you’d think. In a recent interview with the podcaster Lex Fridman, Zuckerberg defined the idea as a “feeling of presence…the feeling that you’re right there in an experience and that you’re there with other people or in another place. That’s just different from all of the other screens that we have.”

Shah echoes that idea: “The core concept of the metaverse is where you feel like you are in an experience.”

No doubt, big brands are intrigued about the potential. Nicola Mendelsohn, vice president of Meta’s Global Business Group, says that among the large advertisers she speaks with, “everybody wants to create a metavision strategy.” She points to recent virtual-reality experiences created by brands like Ray-Ban, Sephora, and Walmart (WMT) as the kind of early experiments now under way.

“You can do things that you couldn’t do in the physical world,” Mendelsohn says. “People want shopping to be fun. On the web, shopping has become quite functional. It lost its serendipity.”

Forrester Research cautions that however you want to define the metaverse, no one has experienced it yet. “Despite the hype, there is no metaverse today,” the research firm wrote in a March report, noting that it is still “years away.”

That isn’t deterring Zuckerberg. He thinks Meta can jump-start the emergence of a large creator economy servicing the metaverse, eventually generating huge revenue for the company in the process.

Meta recently stirred up the creator community when it revealed plans to take a 30% fee for goods sold in the Meta Quest Store, plus another 25% of the remainder for goods used on the company’s Horizon Worlds virtual-reality platform. Therefore, as the company says, if someone sells a digital shirt for $1, the creator would keep only 52.5 cents.

Meta also sees advertising dollars eventually flowing from the metaverse. Meta’s Shah says that once there are thousands of virtual shirts to choose from, consumers are going to need ways to sort through the options—and creators will want a method for getting attention.

“As people start to value how they show up, and what they own in digital spaces, at some point the things that you own in those spaces are equal or even of greater value to you than some of those things you own in the physical world,” Shah says. Eventually, he says, advertisers will want search-based advertising to get their wares discovered.

Meta won’t put a number on how big the metaverse can be, and other estimates vary wildly.

Goldman Sachs analyst Eric Sheridan took a stab at sizing the market in a report late last year. He used a United Nations estimate on the size of the global digital economy—about $15 trillion in 2021—and guessed 15% to 33% of that could move to the metaverse, with market expansion driven by new experiences of 2.5% to 25% (another rough guess). The resulting range: between $2.6 trillion and $12.5 trillion. He gives no time frame for that estimate.

Shares of Meta are historically cheap. But they will remain cheap until investors gain confidence that the company can fix the ad-targeting issue, compete effectively against TikTok, and figure out the metaverse, all while fending off critics who still think the company is far too powerful. Meta faces an array of pending lawsuits, including separate antitrust cases filed by the Federal Trade Commission and a group of 48 state attorneys general.

Zuckerberg, meanwhile, has been spending time finding other ways to tell Meta’s increasingly complicated story. He recently spent more than 90 minutes with the podcaster Tim Ferriss, discussing his adventures in competitive fencing, his struggles to learn Mandarin, and his family’s weekly Shabbat dinners, among other things. He also made the odd assertion that there is value in people not quite understanding what the company is trying to do.

“If I’m doing something that feels too well understood for too long, then I feel like I’m just being complacent,” he told Ferriss. “At this point, I kind of feel like, if people fully feel like they understand what we are as a company and what we’re doing, then I’m not pushing it hard enough…let’s constantly be doing something that can be doubted.”

On that score, at least, mission accomplished.