Photo by Dima Solomin on Unsplash
 

Commentary

Over the years, Meta (META) has tried multiple times to diversify its offerings beyond its core Facebook and Instagram platforms, but nothing so far looks promising. Meta has been investing heavily in virtual and augmented reality technology, and its hemorrhaging is likely to continue.

And let’s not forget the political and regulatory risks. Meta has faced scrutiny over its handling of user data and privacy concerns in the past, and this is likely to continue in the future. If the company can successfully navigate these challenges and if its AR and VR products can have growing users, Meta could continue to grow and succeed in the long term. However, recent stories and data say the opposite.

Remember Yahoo? It was brought down by a basic misunderstanding of what it was as well as some boneheaded decisions about what it should do. Eventually, of course, it got bought and swallowed, turning from predator to prey in less than 10 years.
 

Short-term

The second wave of layoffs at Meta is coming. In fact, they can happen as early as this week, according to Bloomberg and other published reports.

Meta CEO Mark Zuckerberg has said in an all-hands meeting that he wanted to flatten the company’s organization structure, “removing some layers in middle management to make decisions faster.” 2023 is the “year of efficiency,” he said in the fourth quarter’s earnings report. (Source: TechCrunch)

The upcoming layoff could be good for Meta’s stock price short term. Meta’s stock was below $90 per share before the first layoff and now it has more than doubled. In fact, many tech companies that have reported mass layoffs – as expected – have received a massive stock price reboot. In fact, according to data analyzed by Bloomberg, on average, large US tech companies experienced a 5.6% increase in their stock prices in the month after they announced job cuts.

Also on the horizon is a possible ban on TikTok, which would be good news for Meta in the short run. After banning the use of TikTok on devices owned by the federal government, there’s a push in Congress to give President Biden the power to ban the app outright in the U.S. Whether or not it succeeds, the heat will remain to curtail the app.
 

Long-term

Facebook is no doubt a huge success and according to its latest earnings report, Facebook's daily active users (DAUs) were 2.00 billion on average for December 2022. Meta’s other products: Instagram, Messenger, and WhatsApp (collectively, Meta’s family of products) are also striving. Meta’s family daily active people (DAP) was 2.96 billion on average for December 2022, an increase of 5% year-over-year. 

However, apart from Meta’s acquisition of Instagram and WhatsApp, most of Meta’s adventures are not so lucky.

Let’s start with the most recent: Llama. 

Everyone is talking about ChatGPT. Google (GOOGL) just launched a similar service called Bard AI and Chinese tech giant Baidu (BIDU) just announced its ChatGPT-like product called EARIE. And now Meta is rolling out a similar artificial intelligence-powered tool called Llama. 

But interestingly, according to Forbes, Yann LeCun, Meta’s Chief AI Scientist just told the public that ChatGPT 3 is not something impressive and it’s not revolutionary. He should know. Nicknamed one of the “Godfathers of AI,” LeCun shared the highly prestigious Turing Award in 2018 for his work on deep learning.

Deep learning is a subfield of machine learning that involves training artificial neural networks to learn patterns and relationships in data. ChatGPT uses a specific type of deep learning algorithm called a transformer model, which allows it to “understand” the context and meaning of words and phrases. It then generates natural-sounding responses that are appropriate to the conversation. Therefore, deep learning is crucial to the functioning of ChatGPT. 

Yet, ChatGPT is “not particularly innovative” and “nothing revolutionary,” Yann said in January. But one month later, Zuckerberg announced Llama. If Yann is right – and there’s no reason to doubt him – then his boss’s announcement sounds more like a publicity stunt, intended more than likely to mask his and Meta’s questionable all-in metaverse decision. 
 

Metaverse

According to its earnings report, Meta’s investment in the metaverse is shocking to its degree – and should be worrisome to shareholders.

To provide a clear view of the amount of investment made in the metaverse, Meta started to report financial results in 2021 for two segments: Family of Apps (FoA) and Reality Labs (RL).

(Click on image to enlarge)

(Source: Meta earnings report)

The idea behind the huge investment is that as more consumers and businesses adopt VR and AR technology, there could be significant opportunities for Meta to expand its offerings and generate new revenue streams. 

So, the company spent $15.9 billion in the Reality Lab in 2022, 27% higher than the year before.

However, despite the bigger investment, Reality Lab generated only $2.16 billion in revenue in 2022, 5% down from a year earlier. The decrease in RL revenue was driven by a decrease in the volume of Meta Quest sales. 

For 2022, the operating losses for Reality Labs amounted to $13.7 billion – more than the $10.2 billion it invested in 2021.

Will sales pick up in the coming year? Doubtful. Because its key metaverse products are not well-received, or apparently much desired. In fact, Meta announced that it was dropping prices for its still-new Meta Quest Pro by one-third $999.99, while the cost of its Meta Quest 2 was cut from $499.99 to $429.99.

Not all of its problems sit solely on the shoulders of Meta. The entire VR market, including the overall games industry, suffered a 2% slide year-over-year to $1.1 billion last year, according to research from NDP. Still, the outlook for Meta specifically looks shaky. Not even the newer customers who bought the Quest VR headsets are excited about the product. (Meta VP of VR Mark Rabkin recently broke the news to employees, according to a Feb. 28 report by The Verge.).
 

Conclusion

Whether Zuckerberg’s move into the metaverse is too early or just immensely misguided is too early to say. But without a big catalyst, Meta could be, in the long run, the next Yahoo.