On Thursday, Meta’s value plunged by $89 billion after the company owner Mark Zuckerberg reported another quarter of falling revenues and also failed to entice shareholders that big bets on the metaverse and artificial intelligence have been paying off. In New York, Meta shares fell 25% as the world’s largest social networking app joined other Big Tech companies in notifying that an economic slowdown was hurting its advertising businesses as brands had cut back on marketing.
According to the reports, in addition to the broader macroeconomic difficulties, Meta faces a series of challenges, including growing competition for its Instagram platform from competitors such as short-form video app TikTok and difficulties in targeting and evaluating advertising due to Apple’s privacy policy shifts.
The company said late Wednesday that revenue in the current quarter would be in the $30 billion to $32.5 billion range, compared to analysts’ expectations of $32.2 billion. As per the reports, the net financial income of the company dropped 52% to $4.4 billion in the third quarter, falling short of consensus estimates of $5 billion. Meanwhile, revenues fell 4% to $27.71 billion, the slowest rate of growth since going public in 2012.
Mark Zuckerberg, the founder and chief executive of Meta said on Wednesday that the company faced near-term challenges in revenue but the fundamentals are there for a return to stronger revenue growth. He told the investors that he is pretty confident this is going in a good direction. During a conference call with the analysts, he also doubled down on his biggest bets, such as developing a short-form video format to compete with TikTok, business messaging, and the metaverse. He reassured the investors that these investments would pay off in the long run.
Meta’s unimpressive revenues came amid a relatively broad sell-off in Big Tech securities. Google’s shares dropped more than 9% on Wednesday after the company reported a sudden severe slowdown in its core search ads business, while Snap’s stock fell last week after the company reported its slowest rate of growth since going public in 2017.
Notably, investors had already questioned Meta’s decision to spend heavily on Zuckerberg’s vision of creating a digital avatar-filled world known as the metaverse, which grew rapidly during the coronavirus pandemic. This, like Meta’s other virtual and augmented reality projects, is not expected to yield results for many years. Meanwhile, Reality Labs, the company’s metaverse unit, saw revenues nearly drastically reduced to $285 million in the third quarter, while losses were $3.7 billion, up from $2.6 billion in the previous year. The company anticipates that operating losses in the unit would increase significantly year over year in 2023.
The company earlier had estimated that the total company expenses in 2022 would be in the range of $85 billion to $87 billion, recording a drop from its previous estimate of $85 billion to $88 billion. However, despite recently attempting to cut costs and freeze most hiring, it projects 2023 expenditures in the range of $96 billion to $101 billion.
“The company is making significant changes across the board to operate more efficiently and has increased scrutiny on all areas of operating expenses. But these moves will take time to play out”, the company stated adding that some attempts to find savings, like shrinking its work space and allowing more employees to work from home, would result in incremental costs in the near term.
The investors were also informed by Zuckerberg that the company’s investment in artificial intelligence functionality contributed to an increase in capital expenditure, but that was necessary as it would help to increase views of its short-form video format. To note, Zuckerberg’s net worth has also recorded a severe drop by around more than $100 billion this year as Meta faces investor pessimism about its future growth trajectory. His net worth now measures approximately $36 billion.
Facebook had 1.98 billion active daily users on average in September, a 3 percent rise from the previous year. That may appear credible, but it is far from the massive growth seen by Facebook in past years. Reportedly, the slower growth follows Facebook’s announcement in February that it had lost users for the first time in its history.
