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The current economic conditions are sparing no one. Earlier last week, Facebook (Nasdaq: META) announced its second-quarter results that missed all market expectations. The company also provided a weaker outlook, attributing it to market conditions and continued investment in its growth areas.
 

Meta’s Financials

Facebook’s Q2 revenues fell 1% to $28.82 billion, falling short of the market’s estimates of $28.94 billion. Adjusted EPS of $2.46 was below the market’s forecast of $2.59.

Advertising revenues fell 1.5% to $28.15 billion and other revenues grew 13% to $218 million.

Daily active user (DAU) numbers for the core Facebook app grew 3% to 1.97 billion and monthly active users (MAU) grew 1% to 2.93 billion. The number of people active on any one of its family of products, which includes WhatsApp and Instagram, grew 4% to 3.65 billion people per month in the quarter. Daily active users on these applications grew 4% to 2.88 billion.

For the third quarter, Facebook expects revenues to be in the range of $26-$28.5 billion, falling significantly short of the $30.5 billion average analyst estimate.
 

Meta’s Growth Plans

Overall, Facebook is focusing on two key areas of growth. One of the main transformations in its business right now is that social feeds are going from being driven primarily by the people and accounts the user follows to AI recommendations of content that these users will find interesting from across Facebook or Instagram. Social content from people the users know will remain an important part of the experience but will now be supplemented with other interesting content from across its networks. For the last quarter, nearly 15% of the content in a Facebook feed and a little more than that of the Instagram feed is recommended by the AI from people, groups, or accounts that you don’t follow. Facebook is targeting to double this contribution by the end of next year. Facebook is banking on its ability to leverage this flywheel of content discovery, that will help drive user engagement, content quality, and monetization.

The second focus area for Facebook remains its Metaverse. Facebook believes that the metaverse is a massive opportunity as it will enable deeper social experiences. By helping develop the metaverse platforms, it will be able to unlock hundreds of billions of dollars of opportunity. It is working on plans to build out the metaverse economy and help creators make a living working in the metaverse. Recently, Facebook announced plans to launch a web version of Horizon later this year, making it easier for people to experience the metaverse from more platforms without needing a headset. By making it available everywhere, users are able to interact with anyone on whatever device or platform that they choose. It also announced an upcoming release on Quest that will allow users to become embodied in their Meta avatar and be ready to interact in Horizon directly from their Quest home right after putting on their headset.

It also announced plans to release a new, higher-end headset, known as Project Cambria that will be more focused on use cases for professionals and will eventually replace a laptop or work setup. With improved ergonomics and full-color passthrough mixed reality, Project Cambria has the ability to blend virtual reality with the physical world. To increase customers’ sense of presence, it also is building new eye and face tracking to allow avatars to create eye contact and facial expressions. 

Facebook believes that the metaverse will offer three key opportunities. First, it sees the metaverse to be the biggest opportunity for modern business since the internet. It is the next logical evolution of digital platforms and the mobile internet. But since most people will initially experience the metaverse primarily through 2D apps, it believes that businesses will need to stay focused on the skills they are using today to help grow their business on Facebook, Instagram, Messenger, or WhatsApp, as these will be foundational to help them grow their business in the metaverse in the future. For instance, within Digital commerce, the metaverse will create ways that are more immersive for buyers and sellers to connect. Within entertainment, metaverse will offer the ability to host a paid online event on Meta that could be a mixed-reality experience where people could join in person or buy a ticket for the virtual experience.

Second, it believes that the pandemic has accelerated the creation of a hybrid world where people are living both online and offline. Metaverse aims to simplify the transitions between video calls and messages by enhancing physical-world experiences. The current use case of Spark AR shows how the metaverse will meet the physical world and will help businesses use AR to allow customers to improve shopping experiences that were earlier mostly in people – such as shopping for furniture, make-up, or even glasses.

Third, Facebook realizes the need to build metaverse more responsibly. It is not building the solution alone and is getting into a global partnership with businesses, creators, policymakers, entrepreneurs, and others. The metaverse is being built with the framework and foundation of creating a space where people can feel safe. Unlike the current issues with Facebook, the Metaverse claims to offer more integrity, safety, and privacy. Meta already helped set up the Metaverse Open Standards Group which has companies like Microsoft, Epic Games, and Meta itself as part of the forum. The group will focus on practical projects and defining the boundaries of this open standard. Surprisingly, Apple did not join the forum.

Despite its efforts and potential, the metaverse continues to remain a controversial subject for quite a few. Speculators and investors are already buying up virtual land on metaverse, but there are vocal investors such as Mark Cuban, who have gone on record calling this mad rush just dumb.

Its stock is trading at $168.53 with a market capitalization of $452.93 billion. It had climbed to a 52-week high of $384.33 in September last year. It fell to a 52-week low of $154.25 last month.

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