By Tafara Mtutu
FACEBOOK founder and CEO Mark Zuckerberg announced a major rebrand from Facebook to Meta on October 28, 2021, in a bid to shift the tech giant from being identified by only one of its products — Facebook.
Facebook began as a social media and networking service in 2004 and held its initial public offering (IPO) under the name Facebook in 2012.
However, since its listing, the company has engaged itself in both organic and acquisitive growth with popular brands such as Instagram and WhatsApp under its wings. In all this, the company’s identity had remained pinned on Facebook — until now.
While the announcement came as a surprise to the market, this concept of changing names has been around for decades. Companies often change their names because of several reasons that include (i) trying to disassociate from negative events or information, (ii) to signal that the business is taking on a different direction, or (iii) to stay relevant and visible.
Facebook has been in the news in bad light, mostly because of alleged violations of privacy and federal antitrust rules.
In April 2017, Facebook admitted to allegations that there were groups that used the Facebook platform to influence the United States presidential elections, which affected the trust levels among users and opened the door for further scrutiny.
This was shortly followed by the famous Cambridge Analytica scandal which involved a political consulting firm’s improper access to data of over 50 million Facebook users in March 2018.
Since the scandal, Facebook has been the subject of various anti-trust lawsuits, with a US$5 billion fine by the Federal Trade Commission in 2019 and a £50,5 million (US$68,36 million) fine by the Competition and Markets Authority for breaching an order in the Giphy take-over investigation.
The negative news, largely on the back of violations uniquely linked to the Facebook platform, has negatively affected the company’s overall brand equity which went down from US$48 billion in 2017 to US$36 billion in 2021, according to Interbrand.
The rebrand to Meta also serves to signal that the company is going through a fundamental shift in its vision.
In his announcement, Zuckerberg alluded to the growing ambitions of the company beyond social media and into virtual reality (VR). The group also believes that its “metaverse” will be the next level of digital connectivity after social media platforms.
A similar strategy was used by Alphabet, which is formerly known as Google. In 2015, Google announced that it would change its name to Alphabet after Facebook dented its earnings in the few years after its IPO. The group decided to change its name in order to increase visibility of the rest of its operations that were overshadowed by Google the search engine.
We opine that the improved brand visibility of Alphabet’s products after the name change resulted in an increase in the company’s overall brand value which, in turn, underpinned the increase in its share price on Nasdaq in the months that followed. Alphabet’s share price moved from US$664,39 per share before the announcement on August 11, 2015, to US$765,84 a few months later, on of December 24, 2015.
We note that investors are also reacting to Meta’s name change in a similar way. Meta’s share price was US$312,22 per share prior to the announcement, and it gained 9,3% to US$341,13 a few days after the announcement.
In Zimbabwe, Cassava SmarTech’s similar announcement is the most recent case of a name change in Zimbabwe. The fintech company announced that it would change its trading name from Cassava SmarTech to EcoCash Holdings in order to avoid confusion with assets owned by the controlling shareholder with the word “Cassava”.
However, we note that this was a missed opportunity by EcoCash Holdings to improve its brand equity following a crackdown on its flagship product — EcoCash — by the central bank.
The EcoCash platform made headlines in 2020 after accusations that the mobile money platform had inadequate KYC documentation and facilitated illegal parallel market activity.
In May 2020, the Financial Intelligence Unit issued a directive for EcoCash to freeze the accounts of all agents that transacted above ZW$100 000 per month, who were suspected of driving parallel market activity. Many of these accounts also had inadequate KYC documentation, and this compounded EcoCash’s woes with the RBZ.
Unlike Meta, EcoCash did not rename the company in a way that placed less focus on EcoCash alone and more spotlight on some of its cleaner and innovative brands such as Vaya, Mars, Econet Life and Econet Insurance.
We opine that having EcoCash as a trading name will continue to place undue risk on the visibility of other brands and affect the overall brand equity of the group. Ever since the crackdown by the RBZ and the subsequent stringent limitations on mobile money transfers, EcoCash’s share price has exhibited signs of share price weakness on the ZSE.
Since EcoCash was unbundled from Econet Wireless in 2018, the two stocks had been trading at par. However, the parity has fallen apart since the crackdown and each share of EcoCash currently trades at almost half the price of Econet.
- Mtutu is a research analyst at Morgan & Co. — firstname.lastname@example.org or +263 774 795 854.