Facebook (META  ) shares and the company are floundering as the company faces an existential set of challenges.

For one, the company's vaunted investment and heavy spending on the metaverse haven't yielded much in terms of traction. And, it seems that the company is quietly pulling back on this move given the concerning decline in its core business. Additionally, this is a climate for companies to prioritize cash flow rather than aggressive and speculative bets on future growth.

Another issue facing Facebook is the rise of TikTok which has a clear lead in terms of becoming the most used social platform more Generation Z. This would be hard to imagine when Facebook was founded in 2004 and was only open to college students. Facebook is attempting to compete with short-form videos on Facebook and Instagram, but these are being monetized less effectively than the standard content on the platforms. Therefore, Facebook is in the difficult position of fighting for market share but hurting revenue or maximizing revenue while losing market share.

The final existential challenge for Facebook is Apple's (AAPL  ) new privacy policy which makes ad-targeting more difficult. This has negatively affected the effectiveness of ads which leads to less revenue. This is the major driver of Facebook's core business, and it's difficult to see what would reverse this trend.

So far this year, Facebook shares have been among the worst-performing in the S&P 500 (SPY  ) with a 60% decline which is more than double the S&P 500's YTD loss. For those who believe that the company and its management team can pull off a successful pivot, the stock has to look quite attractive given its forward P/E of 12.3 and nearly $35 billion in cash.

The company has also embraced these challenges as it has been aggressively cutting costs, and management is looking to weed out underperformers. In essence, Facebook's remarkable ascent was powered by 'network effects'. As its network and user base grew, it become more valuable for users and advertisers.

Now, we are seeing these 'network effects' unwind. The network is becoming less valuable to advertisers and less appealing to users.