Meta Platforms Inc. fell as much as 25% on Thursday morning after Chief Executive Officer Mark Zuckerberg begged investors for patience with the social media giant’s growing investments in unproven ventures at a time when digital-advertising companies are already facing difficulties.
Zuckerberg attempted to justify Meta’s increasing spending to support its version of virtual reality, the metaverse, as well as the artificial intelligence propelling huge changes to its social networks on a call Wednesday following a poor revenue prediction.
Investors have already knocked the stock down 61% this year. The market value of Facebook’s parent company has dropped by a stunning $677 billion this year, removing it from the list of the 20 largest US corporations. Zuckerberg, on the other hand, said he is certain that Meta’s major bets in areas such as short-form video, corporate communications, and the metaverse are on the right track, but he couldn’t estimate how huge the payback would be.
It’s proving difficult to sell when the company expects its already-falling revenue to be lower than analysts anticipated and costs to rise. On Wednesday, Meta said that third-quarter revenue fell 4.5% from the previous year, only the second time the company’s sales had ever fallen, the first being in the previous quarter.
Meta expects that tendency to continue in the remaining three months of the year. The company’s fourth-quarter forecast fell short of analysts’ expectations. Meta currently anticipates overall spending for this year to range between $85 and $87 billion. According to the business, that figure will rise from $96 billion to $101 billion in 2023.
Meta has already had to deal with a drop in marketer spending owing to economic uncertainties, as well as a change in Apple Inc.’s privacy policy, which rendered all social media ads less effective. To focus on keeping its social media platforms relevant and increasing virtual reality capabilities, the corporation has reduced costs by limiting hiring and narrowing goals.
The company, which changed its name from Facebook to Meta a year ago, is also betting heavily on the metaverse, which Zuckerberg believes will host the future of work and communication. The initiative is costing Meta billions of dollars, and the corporation expects to lose even more money on the metaverse next year.
Meta isn’t the only internet business struggling from a sluggish advertising market; Alphabet Inc. and Snap Inc. were both punished for similarly poor outcomes. It is the only corporation that is redesigning its social media platforms while spending around one-tenth of its sales on a virtual future that is still years away.
Meta has modified Facebook and Instagram’s experiences in the last year to show more algorithmically selected material and fewer posts from individuals users follow. In response to ByteDance Ltd.’s successful TikTok app, which has gained users’ time and acclimated them to a stream of vertical films based on certain interests, it’s now promoting short-form videos dubbed Reels.
Meta’s legacy social media products must maintain enough popularity to produce the advertising money required to fund Zuckerberg’s metaverse goal. With 2.93 billion daily active users in the third quarter, 4% more people spend time on Meta’s platforms every day compared to the same period the previous year. The internet giant’s family of apps, which includes Messenger and WhatsApp, had 3.71 billion active users each month.
On Wednesday, Instagram announced that it has topped 2 billion monthly active users and that these individuals are spending more time watching Reels – and marketers are spending to advertise there, at an implied pace of $3 billion per year. However, Reels is causing a $500 million revenue drag in the most recent quarter as the newer product cannibalizes other ad spaces that monetize at a higher rate. According to Zuckerberg, it could take up to 18 months for that to change.
Zuckerberg has already requested patience. In 2015, investor concerns centered on when WhatsApp, Instagram, and Messenger would begin to generate revenue. The difference back then was that each of those applications had hundreds of millions of users.
More about Meta
Meta Platforms, Inc., doing business as Meta and formerly known as Facebook, Inc. and TheFacebook, Inc., is an American worldwide technology firm based in Menlo Park, California. Among its many assets are Facebook, Instagram, and WhatsApp. Meta is one of the world’s most valuable companies. It is one of the Big Five American information technology businesses, with Alphabet, Amazon, Apple, and Microsoft.
Meta’s products and services include the Facebook, Messenger, Facebook Watch, and Meta Portal. It also has 9.99% ownership in Jio Platforms, Oculus, Giphy, Mapillary, Kustomer, and Presize. Advertising sales will account for 97.5% of the company’s income in 2021.
In order to “reflect its concentrate on developing the metaverse,” Facebook’s parent corporation changed its name from Facebook, Inc. to Meta Platforms, Inc. in October 2021. According to Meta, the “metaverse” is a unified ecosystem that unites all of the company’s products and services.
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