Shares of Facebook parent company Meta plunge on falling profits and soaring spending
Newly renamed Meta is investing heavily in its futuristic “metaverse” project, but for now it depends on ad revenue for almost all of its revenue. So when it posted significantly higher costs but gave a weak revenue forecast on Wednesday night, investors were spooked – and knocked nearly $200 billion off the valuation of the company formerly known as from Facebook.
Shares of Meta fell 22.6% to $249.90 in after-hours trading. If the decline continues until the market opens on Thursday, the overall value of the company, known as the market capitalization, is on track to fall by a figure larger than the size of the entire company. Greek economy, based on World Bank data.
The Metaverse is a sort of animated Internet, or at least rendered in 3D. Meta CEO Mark Zuckerberg described it as a “virtual environment” you can immerse yourself in instead of just staring at a screen. Theoretically, the metaverse would be a place where people can meet, work, and play using virtual reality headsets, augmented reality glasses, smartphone apps, or other devices.
But building it probably isn’t cheap.
Meta invested more than $10 billion in its Reality Labs segment — which includes its virtual reality headsets and augmented reality technology — in 2021, contributing to lower earnings in the quarter. It increased its workforce by 23%, ending the year with 71,970 employees, mostly in technical roles.
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The company also said current-quarter revenue is likely to fall below market expectations, in part due to growing competition from TikTok and other rival platforms vying for people’s attention. Sheryl Sandberg, Meta’s chief operating officer, said on a conference call with analysts that global supply chain issues, labor shortages and holiday spending earlier than expected habit by advertisers were putting pressure on the company’s advertising sales.
Another problem: Apple’s recent privacy changes make it harder for companies like Meta to track people for advertising purposes, which also puts pressure on the company’s revenue. For months now, Meta has been warning investors that its earnings cannot continue to grow at the blistering pace they are accustomed to.
“It’s time to check Meta’s position for the metaverse,” said Raj Shah, an analyst at digital consultancy Publicis Sapient. “The Metaverse is far from profitable or making up for the shortfall in ad revenue after Apple’s policy change.”
Changing people’s online behavior is also limiting Meta’s ability to make money. More people watch videos, like Instagram’s Reels (a TikTok clone), and it makes less money than more established features.
The Menlo Park, Calif.-based company said it earned $10.29 billion, or $3.67 per share, in the last three months of 2021. That’s down 8% from 11, $22 billion, or $3.88 per share, from the same period a year earlier. Revenue rose 20% to $33.67 billion.
Analysts on average had expected earnings of $3.85 a share on revenue of $33.36 billion, according to a poll by FactSet.
Meta Platforms Inc. took on its new name last fall to emphasize Zuckerberg’s new focus on the metaverse. Since then, the company has shifted resources and hired engineers — including from rivals like Apple and Google — who can help bring its vision to fruition.
Zuckerberg is betting the metaverse will be the next generation of the internet because he thinks it’s going to be a big part of the digital economy. He expects people to start seeing Meta as a “metaverse company” in the coming years, rather than a social media company.
For now, however, the metaverse exists only as an amorphous idea envisioned — and named — by science fiction writer Neal Stephenson three decades ago. It’s not yet clear whether this will be the next iteration of human-computer interaction as Zuckerberg sees it, or just another playground for techies and gamers.
This could scare off investors, who tend to prefer immediate, or at least quick, results on investments.
“There is a lot of uncertainty about Meta’s investments in the metaverse and if or when they will positively impact the company’s bottom line,” said Insider Intelligence analyst Debra Aho Williamson.
“While we expect Meta to ramp up ad and commerce testing within its metaverse offerings this year, these efforts will be very experimental and unlikely to generate much near-term revenue,” he said. she adds.
Meta said it expects revenue of between $27 billion and $29 billion for the current quarter, below the $30.2 billion forecast by analysts.