Facebook-owner Meta has warned of slowing growth, as audiences flock to competitors like TikTok and the businesses that advertise on its platforms cut marketing budgets.
The firm said sales growth could be just 3% in the first three months of 2022, far below its historic pace.
Profits have already been hit as the firm ploughs money into projects focused on virtual reality.
The update sent shares down 20% in after-hours trade.
The sell-off spread to similar companies, like Snap, which also saw its shares plunge.
Analysts had been expecting Meta to report strong numbers, after Google-owner Alphabet shared its results yesterday.
The search giant, which also relies on advertising, reported revenues and profits that rose more than 30%.
But Meta – the parent company of Facebook, Instagram and WhatsApp – has seen its dominance of social media challenged by companies like TikTok, known for its 30-second videos.
Meta boss Mark Zuckerberg said the firm’s sales growth had been hurt as audiences – especially younger users – left for rivals.
More than 2.8 billion people used one of its apps daily in December, but growth has slowed.
While the company has been making its own investments in video to compete with TikTok, it makes less money from those offerings than its traditional Facebook and Instagram feeds.
Mr Zuckerberg said he was confident the investments in video and virtual reality would pay off, as previous bets on mobile advertising and Instagram stories have.
But, he noted, the firm didn’t have to contend with a major rival during previous shifts in strategy.
“The teams are executing quite well and the product is growing very quickly,” he said. “The thing that is somewhat unique here is that TikTok is so big a competitor already and also continues to grow at quite a fast rate.”
In its forecast for investors on Wednesday, Meta said it expected revenue growth of between 3% and 11% in the first three months of 2022.
As well as the threat from TikTok, that slowdown at least partly reflects bigger economic issues, executives said.
“We’re hearing from advertisers that macroeconomic challenges like cost inflation and supply chain disruptions are impacting advertiser budgets,” the firm added.
The update added to questions facing Mr Zuckerberg over his bet on the so-called “Metaverse” – an online world where people can game, work and communicate in a virtual environment, often using virtual reality headsets.
The firm’s Reality Labs unit, which focuses on virtual reality, lost more than $10bn last year.
“It’s clear that there are many big roadblocks ahead as Meta faces tough new competition for ad revenue such as TikTok, and as it contends with ongoing ad targeting and measurement challenges from Apple’s iOS changes,” said Insider Intelligence analyst Debra Aho Williamson, referring to changes made by Apple that make it harder to target ads on Facebook and Instagram.
“In addition, there’s a lot of uncertainty about Meta’s investments in the metaverse and if or when they will have a positive impact on the company’s bottom line.”
Meta revenues in the last three months of 2021 topped $33.6bn (£24.8bn), up 20% year-on-year. But expenses rose almost twice as fast, to $21bn.
Some of those costs were due to increased legal expenses, as the firm fights lawsuits, including from regulators that it runs a social media monopoly.
Profits in the quarter dropped 8% compared to the year before, falling to $10.3bn.
