Meta’s Metaverse Bleeds Investor Billions

Meta's Metaverse Bleeds Investor Billions

Meta lost $9.4 billion in the first nine months of the year in its metaverse unit Reality Labs and sees significantly wider operating losses going forward. But its not just Meta that is suffering in the technology sector. A slowing economy have seen companies cutting marketing budgets. 

To make the ambitious dream of creating a metaverse a reality, just about a year ago Facebook/Meta announced it was hiring 10,000 software engineers over the next five years – the biggest ever hire in tech history – to build its metaverse, a mix of reality, virtual reality (VR) and augmented reality (AR) realms.

The technology giant’s valuation at the time was close to $1 trillion, a princely market capitalisation usually reserved for the US’ premier blue chip corporates like Apple.

“Digital goods will be an important way to express yourself in the metaverse and a big driver of the creative economy. I am excited to bring more brands and bring VR soon too,” Zuckerberg said at the time.

Yet barely a year after Mark Zuckerberg’s big Meta presentation, the company’s stock has plunged by more than 70%, bleeding investors billions.

Now, Meta is worth only $300 billion, just a third of its market value a year ago.

Old Facebook Profitable While Meta's Metaverse Bleeds Investor Billions

Analysts and industry experts say Zuckerberg’s fixation with the metaverse has come at a high price for the company.

“The obsession with the (metaverse) project has done tremendous harm to the brand,” CircleIt founder and CEO Art Shaikh tells MetaNews.

In the quarter to September, revenue came down 4% from $29 billion to $27.7 billion.

Meta’s results have raised questions on whether Zuckerberg’s all-in bet on the metaverse was the smartest play and whether its gamble on the future will pay off eventually.Old Facebook Profitable While Meta's Metaverse Bleeds Investor Billions“Meta’s results …was an absolute train wreck that speaks to pervasive digital advertising doldrums ahead for Zuckerberg & Co as they make the risky and head scratching bet on the metaverse,” Wedbush analysts Dan Ives said in its report.

Concerns have also been raised on whether Meta can transform itself into a virtual reality behemoth and power the company’s next phase of growth.

Analysts say such strategic pivots take a while for big tech companies to implement and reap financial benefits from in the near term.

“Every new technology takes years to first convince the marketplace of users, workers and investors, and then to create something that captures the imagination of the marketplace,” Jeff Kagan, a technology industry analyst tells MetaNews.

Meta lost $9.4 billion in the first nine months of the year in its Reality Labs, its metaverse unit and sees significantly wider operating loss in fiscal year 2023 (FY23).

But its not just Meta that is suffering in the technology sector. A slowing economy have seen companies cutting marketing budgets. 

Even tech companies like Alphabet, the parent company of Google, have not been spared with top line earnings declining in the period to $54.5 billion from $56.3 billion.

What went wrong with the meta pivot?

“It was a matter of timing”, Kagan says.

“The metaverse was still in its early years and the marketplace of users and investors simply had no clue what to expect,” Kagan says.

“That is where Facebook or Meta was wrong. They moved too quickly. They jumped over too many important steps. That is why this company is stuck in the metaverse mud today.”

But Zuckerberg painted a picture of an entity holding a fort in the market. 

User engagement for its apps is at its peak, he says. A total of 3.7 billion people now use one of Meta’s apps monthly. The number of people using Facebook, Meta’s flagship application, is the highest it has ever been, he says.

Instagram has more than 2 billion monthly actives while Whatsapp, its messenger application service, has more than 2 billion daily actives.

Its Reels product, a video sharing service positioned to compete with Tik Tok that is integrated into the Facebook application, is also doing well, he added.

This number represents a 50% growth in the past six months, he said.

All the numbers look promising elsewhere except in Meta’s new baby, the Metaverse.

Horizon Worlds, the name of Meta’s new virtual space, slashed its target for monthly active users to only 280,000 monthly from an initial 500,000. In reality, the space is only attracting about 200,000 people at the time of writing.

Investors are getting increasingly impatient with Zuckerberg and his metaverse.

Old Facebook Profitable While Meta's Metaverse Bleeds Investor Billions
What will it be? Facebook 2.0? Or something completely different?

While it generally takes longer in Silicon Valley to build a business, Wall Street tends to value businesses based on nearer returns rather than foggier forecasts that stretch out for years.

It’s a view Kagan shares too.

“However, every new technology takes years to first convince the marketplace of users, workers and investors, and then to create something that captures the imagination of the marketplace,” Kagan says.

“Smartphones had been with us for more than a decade or two to one degree or another with Blackberry, Palm Pilot and others. The marketplace now understood the smartphone marketplace, so when the Apple iPhone and Google Android were released, they were an instant success.”

Even Zuckerberg realises this now.

“There is still a long road ahead to build the next computing platform, but we are clearly doing leading work here,” he said. “This is a massive undertaking and it will often take a few versions of each product before they become mainstream.”

If he gets it rights, he reckons it is going to be of “historic importance”, adding it will create an entirely new way humans interact with each other “as well as a foundation for the long term of our business.” 

Rumors of Zuckerberg stepping down

For the first time in years rumors that Zuckerberg could be made to walk the plank, have emerged as investor concerns rise with falling earnings.

Meta's Metaverse Bleeds Investor Billions
Infinity, or a pair of glasses?

Meta’s director of communications, Andy Stone, made the unusual decision to publicly respond to unsubstantiated market rumors that claimed Zuckerberg could step down as the group’s CEO during 2023. 

In response to the rumor, Stone wrote on Twitter, “this is false.”

For FY23, Zuckerberg is being coy about the metaverse, preferring to focus on what he described as a “small number of high priority growth areas.”

This, he says, will involve working on the “AI discovery engine powering Reels”  and other “recommendation experiences, our ads and business messaging platforms and the metaverse.”

In a way, it is a return to the basics.

Also Meta is laying off 13% of its staff, or more than 11000 employees, Zuckerberg announced last week.

“Layoffs might appease investors for a bit, but the overall move away from the metaverse project and focusing on core revenue generating products will be the only way to save things,” Kagan concluded.

MetaNews.

Image credits: Shutterstock, CC images, Midjourney, Unsplash.

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