Shares in Meta (META), the parent company of Facebook, plummeted more than 19 percent on Wednesday, with after-hours trading wiping off some $65 billion in market capitalization. Spiraling costs and a four percent fall in year-on-year revenue revealed on the company’s earning call prompted a significant sell-off by investors. $65 billion is one of the largest-ever one-day drops in market cap and comes only eight months since Meta shed a record $232 billion in a single day.
Meta CEO Mark Zuckerberg reiterated his commitment to plowing billions of dollars into developing the metaverse, despite investors voicing their concerns that the company is dedicating too much focus to unproven and experimental areas instead of concentrating on the areas of the business that are proven. Ad sales are one area of concern for Meta investors. The social media giant posted $27.7bn in revenue for the third quarter, some four percent less than the same period last year, as companies advertising sports betting in Texas and other such entities tighten their belts with inflation soaring throughout the world.
Worrying for investors is Meta is struggling to keep up with the rapid growth of TikTok. TikTok became the most-downloaded app in the world in 2022 and will overtake YouTube as the social media platform users spend the most time watching by 2023. Meta attempted to close the gap on TikTok by throwing money at its video content product Reels, but it is seriously struggling with monetization.
Debra Aho Williamson is an analyst at Insider Intelligence. Williamson questioned Zuckerberg’s seemingly blind commitment to the metaverse. “Meta is on shaky legs when it comes to the current state of its business. Zuckerberg’s decision to focus his company on the future promise of the metaverse took his attention away from the unfortunate realities of today.”
Astronomical Metaverse Losses Set To Worsen
Reality Labs, Meta’s metaverse unit, is not expected to generate meaningful returns for many years, but the continually rising costs seem to be worrying investors. Reality Labs’s revenue halved to only $285 million during the third quarter, and its losses increased from $2.6 billion to $3.7 billion. Meta stated it fully expects Reality Labs’ operating losses to grow significantly year-over-year as the company invests heavily in new technology. Investors voiced their concerns about the increasing losses during the company’s earnings call, and Zuckerberg defended his choices to continue spending vast sums of money on what many see as a gamble.
“Over time, these are going to end up being very important investments for the future of our business. This is some of the most historic work we’re doing. People are going to look back on this decades from now and talk about the importance of the world that was done here. While we face near-term challenges on revenue, the fundamentals are there for a return to stronger revenue growth.”
The metaverse seems frighteningly expensive when high levels of inflation and soaring living costs grip most of the world. The virtual reality headsets for the best metaverse experience weigh in at around $1,500, which puts them out of reach of the masses. A lack of people frequenting the metaverse means fewer eyes see advertisements. Lower viewing figures mean advertisers reduce their ad spending; it is a vicious circle.
Other Tech Giants Announce Disappointing Third-Quarter Results
It is not only Meta that has released disappointing figures because Alphabet and Microsoft have struggled recently. Google parent Alphabet reported third-quarter revenue of $69 billion, which is a six percent increase on last year but some $1.09 billion less than analyst estimates. Alphabet, like Meta, is struggling to compete with TikTok in the highly lucrative video-content space.
Microsoft reported a 14 percent drop in profit for the July to September period compared to the same time in 2021. The tech giant blamed weak PC sales around the globe, with consumers being more conscious about where they spend their money. Even the company’s Xbox content and services revenue fell by three percent.
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