Earnings for Meta’s third quarter paint a picture of a company reeling from stiff competition, economic headwinds, but most importantly, a commitment to Metaverse technology that continues to erode investor confidence.
In its most recent earnings report, Meta (nee Facebook) announced that net income fell 52% year-on-year while expenses rose 19% year-on-year over the same period, reflecting the twin pressures of economic shifts and internal Printing is attributed to Metaverse editions. Overall revenue for the quarter fell 4% year over year to $27.7 billion as company sales continued to decline in a year also impacted by advertising performance difficulties.
Meta says it has taken financial challenges into account in its 2023 budgeting and is scrutinizing “almost all” of its investment portfolios for macro effects. But all indications are that meta-investors have a bitter pill to swallow in the year ahead. At Reality Labs, the meta-business tasked with developing virtual reality (VR), augmented reality (AR), and the company’s headline-grabbing “Metaverse,” costs show no sign of slowing down.
In fact, the company said in the report that it expects to spend even more than ever on its VR projects in the coming year, a fact made even more shocking — especially for investors — by the context of the company’s financial health. Reality Labs’ operating expenses for the third quarter were $3.7 billion, adding to 2022’s total losses to date of more than $9 billion. Along the way, losses are almost guaranteed to surpass the $10 billion reported for 2021, and the company admits its forecasts suggest even more will flow into the company in the coming year.
“We expect reality labs operating losses to increase significantly year over year in 2023,” said Dave Wehner, Meta’s chief financial officer.
This would be a risky venture with a clear end goal in mind, a spending gauntlet for the company to seek glory in the midst of the global economic downturn of driving a new technological standard for all walks of life. But the tech giant’s move is even more confusing for the simple reason that there’s still no convincing use case for the Metaverse technology. Despite all the money that’s been poured into it, the virtual reality oasis Zuckerberg promises with every company announcement has yet to materialize, and every iteration unveiled to date has prompted comments that the overarching idea for Metaverse is a waste of time.
In response to a question about the introduction of Metaverse technology, Zuckerberg stated that while people could argue that it is a bad investment, he believes the technology will be important for the future and therefore worth Investing in investors, he also stressed that those with patience will be rewarded in due course. Whether that pays off remains to be seen.
The guard reported that Meta shares fell 19% in after-hours reading after the earnings call, taking the company’s value down more than $65 billion and keeping shares trading nearly 60% lower than in the first quarter.
Reality Labs’ increased costs are due in part to the launch of Meta’s forthcoming Quest 3 virtual reality headset, as well as annual salaries for new employees. In fact, Meta has increased its workforce by 28% over the past year, bringing the company to 87,314 employees.
With salary costs this high, Meta could mimic the cost-cutting moves of other big tech companies, such as: The company has already canceled internships for 2023, with candidates already offered internships being emailed about the cost-cutting move as the company admitted it was evaluating its hiring strategy for 2023.
Of course, Reality Labs wasn’t nearly the only factor contributing to Meta’s downturn this quarter. As with Microsoft’s quarterly earnings, the strength of the dollar over the period was unfavorable to international sales and advertising demand across the sector is slowing as inflation seeps into corporate budgets. Apple’s implementation of greater privacy measures in iOS 14.5 has also impacted Facebook’s effectiveness at identifying trackers, a move that Meta says will cost the company $10 billion directly in 2022.
The competition is proving troubling for the company as it faces a real rival in TikTok, Gen-Z’s app of choice. The firm, owned by Chinese tech giant ByteDance, offers users short videos and an advanced content algorithm in a strategy that has become both hugely popular and incredibly profitable, even as it seeks removal from national security app stores.
“To stay competitive with companies like TikTok, whose UK sales grew six-fold to nearly $1 billion earlier this month, Meta is currently testing the ability to schedule posts and Instagram Reels with an in-app tool, which would mean a significant boost to the company’s content programming capabilities of the platform,” said Zarnaz Arlia, chief marketing officer at Emplifi, the marketing partner of Facebook and Instagram.
On Meta’s recent earnings call, Zuckerberg aimed to allay investor fears by declaring that the company will “accelerate” Reality Labs’ investments in the coming years to facilitate company-wide growth and boost operating income . Its stated strategy is to dedicate a certain portion of the profits from its “Family of Apps” — Facebook, WhatsApp, and Instagram — to Reality Labs and other research and development ventures, while retaining enough for healthy shareholder returns.
It’s hard to think of a word more associated with Metaverse technology than “faith” right now. Even the most optimistic investors and most ardent supporters of the prospect of web3 will likely raise eyebrows at these results and begin to grapple with long-held criticisms of the Metaverse technology. Asking to trust a concept that still hasn’t sparked the tech revolution promised by Zuck and is being hoaxed by many in the tech community could prove too much for investors in the year ahead.
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