Meta, Facebook’s parent company recorded yet another decline in revenue in its third-quarter earnings on Wednesday, compounding the revenue woes of the social media conglomerate that started early this year.
Meta’s third-quarter earnings were reported at $1.64 per share, less than the expected $1.89, according to Refinitiv. Its revenue for the quarter came in at $27.71 billion, compared with a $27.38 billion target, as sales dropped by 4%.
Shares in Meta were 20% lower at $103.79 at last check in premarket trading, indicating a huge drop of about $67bn in the company’s market value. Besides the effect of Apple’s iOS privacy policy update, the downward trend of the company’s market capitalization has been largely tied to the CEO, Mark Zuckerberg’s metaverse adventure.
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“META (-24% to $99 pre-mkt) has now lost $600B in market cap in 2022,” investment adviser Gary Black said. “Once the 5th largest U.S. company by market cap, Zuck’s refusal to listen to reality and instead spend billions on Metaverse instead of Instagram, Facebook, and WhatsApp crown jewels is a case study in hubris.”
Earlier this year, Zuckerberg announced his plan to shift focus on metaverse as Facebook, Meta’s major social media platform, took revenue hit from the massive drop in ads revenue, owing to Apple’s iOS privacy policy that provided iPhone users with the choice to stop ad-tracking. The CEO is said to have pumped $15 billion into the metaverse project, which has yielded no gain yet and doesn’t hold the promise.
“The roll out and take up of the group’s virtual reality products leaves a lot to be desired, despite the seemingly never-ending upwards spiral of the research and development budget,” Hargreaves Lansdown’s lead equity analyst Sophie Lund-Yates said.
Although Facebook has Apple to blame for the major part of its revenue crisis, Zuckerberg had been expected to focus on beating the challenge – creating revenue streams from other platforms. His big bet on metaverse, amid growing dominance of TikTok, has been widely considered a wild-goose-chase.
Meta’s metaverse-focused Reality Labs division reported an operating loss of $3.7 billion, recording a 49% revenue fall from the previous year to $285 million. The continuous loss has inspired a chorus of criticism from analysts. Douglas A. BOOneparth, President Bone Fide Wealth, said “maybe Meta investing $10 billion in a fake reality was a bad idea.”
Meta has lost its place in the league of top 5 most valuable companies in the US, falling from above $1 trillion in market capitalization to about $290 billion. Going by the current trend, the social media giant is also on the brink of losing its place in the ranks of the 20 largest US companies.
But Zuckerberg has been adamant – choosing to pump more money into the loss-making idea. Meta said it would be spending between $96 billion to $101 billion in its forecast of expense guidance for 2023, a 15% increase to the company’s 2022 budget.
The unpalatable story is likely going to stir a revolt from the company’s shareholders soon. In an open letter to Zuckerberg, which is believed to represent the sentiment of Meta’s investors, Altimeter Capital chair and CEO Brad Gerstner, whose investment firm owns 2.5 million shares of Meta, said the company has lost its focus – offering suggestion on how it could get its “mojo back.”
“Meta has drifted into the land of excess—too many people, too many ideas, too little urgency. This lack of focus and fitness is obscured when growth is easy but deadly when growth slows and technology changes,” Gerstner wrote.
“The conventional wisdom—press and investor—is that the core business hit a wall last fall. As a result, the team hastily pivoted the company toward the metaverse—including a surprise re-naming of the company to Meta. Worse, this skepticism seemed to be affirmed with a nearly-immediate and sizable miss in financial results and continued under-performance throughout 2022,” he added.
Gerstner took a swipe at Zuckerberg’s obsession with the metaverse. He said the idea has caused the company to lose the confidence of investors.
“People are confused by what the metaverse even means,” he said. “If the company were investing $1–2B per year into this project, then that confusion might not even be a problem.”
“An estimated $100B+ investment in an unknown future is super-sized and terrifying, even by Silicon Valley standards,” he wrote.