Meta, a newly-named company, is now investing heavily in its futuristic, “metaverse”, project. However, for the moment, it relies almost entirely on advertising revenue as its source of income. Investors were shocked when the company posted sharply higher expenses but gave weak revenue forecasts late Wednesday. This led to a valuation of almost $200 billion being lowered.
After-hours trading saw Meta’s shares fall 22.6%, to $249.90. Based on data from World Bank, Meta’s market capitalization (or overall value) is expected to fall by more than half the amount of the entire Greek economy if the drop continues until Thursday’s market opening.
The metaverse is a kind of the internet made real, or at most rendered in 3D. Mark Zuckerberg, Meta CEO, described it as a virtual environment in which you can fully immerse yourself rather than just looking at a screen. The metaverse, theoretically, would be a place in which people could meet, work, and play with virtual reality headsets, augment reality glasses, smartphone applications, or other devices.
It is unlikely that it will be affordable.
In 2021, Meta spent more than $10 million in its Reality Labs section — which includes its virtual reality headsets as well as augmented reality technology — contributing to the quarter’s decline in profit. It increased its workforce by 23% and ended the year with 71.970 employees, mainly in technical positions.
According to the company, revenue for the current quarter will likely be lower than market expectations due to increased competition from TikTok as well as other platforms competing for users’ attention. Meta’s chief operating office Sheryl Sandberg stated in a conference call that the company’s advertising sales are under pressure due to global supply chain issues and labor shortages.
Another problem is that companies like Meta can no longer track individuals for advertising purposes. This puts pressure on company revenue. Meta has been warning investors for months that revenue growth is not possible at the same rapid pace it used to.
Raj Shah, an analyst with digital consulting firm Publicis Sapient said that “it is time to a reality check Meta’s position on the metaverse.” “The metaverse is far from being profitable, or filling the gap for ad revenue following Apple’s policy changes,” said Raj Shah, an analyst at Publicis Sapient.
Meta’s ability to make money is being hampered by people’s online behavior. People are more likely to watch video, like Instagram’s Reels (a TikTok clone), which makes less than other established features.
Menlo Park, Calif.-based firm reported that it earned $10.29 Billion, or $3.67 per Share, in the last three months of 2021. This is a decrease of 8% from the $11.22 million, or $3.88 each share in the same period last year. Revenue rose 20% to $33.67billion.
According to FactSet, analysts were expecting earnings of 3.85 per share for revenue of $33.36 trillion.
Meta Platforms Inc. was renamed last autumn to reflect Zuckerberg’s focus on the metaverse. The company has been shifting resources since then and recruiting engineers from other companies, such as Apple and Google, who can help him realize his vision.
Zuckerberg believes that the metaverse is the next generation of internet. He thinks it will be a major part of the digital economy. In the next few years, he expects that Meta will be seen as more than just a social media company.
The metaverse is a speculative idea that Neal Stephenson, a science fiction author, envisioned and named three decades ago. It is not clear yet if the metaverse will be the next iteration in human-computer interaction as Zuckerberg envisions it or just another playground of techies and gamers.
This could scare investors who are prone to want quick results.
Debra Aho Williamson, analyst at Insider Intelligence, stated that there is a lot of uncertainty regarding Meta’s investments into the metaverse and whether or not they will have any positive impact on the company’s bottom line.
She said that while we expect Meta to increase its testing of ads and commerce within its metaverse offerings in 2011, those efforts will be very experimental and unlikely to generate much revenue in the short term.
Meta stated that it anticipates revenue of between $27 billion to $29 billion in the current quarter. This is below the forecasted $30.2 billion by analysts.
