Meta earnings ’cause for concern’ and 2023 looks even bleaker –

Investors’ calls for faith in metaverse’s tech only underscore concerns that its investment strategy won’t pay off


Image: Getty via Dennis

The numbers are for Meta’s third quarter, and they painted a picture of a company battered by stiff competition, economic woes, but above all, a dedication to metaverse technology that continues to erode investor confidence.

In its latest earnings report, Meta (parent of Facebook) announced that net income fell 52% year-over-year, while expenses rose 19% year-over-year over the same period, driven by the twin pressures of economic changes and internal metauniverse costs. Overall, revenue in the quarter fell 4% year-over-year to $27.7 billion as the company’s sales continued to decline for the year, also mired in a struggling advertising performance.

Meta says it has taken the financial challenges into account in its 2023 budgeting and is applying controls to “almost all” of its investment portfolios with macro effects in mind. But there is every indication that Meta investors will have to swallow something of a bitter pill next year. When it comes to Reality Labs, the Meta business charged with developing virtual reality (VR), augmented reality (AR) and the headline-grabbing “metaverse,” spending shows no sign of abating.

In fact, the company said in the report that it actually expects to spend even more on its VR endeavors next year than ever before, a fact that’s more shocking — especially to investors — in the context of the business’s financial health. Reality Labs’ operating expenses for the third quarter were $3.7 billion, adding to total losses of more than $9 billion in 2022 so far. On that trajectory, losses are almost guaranteed to exceed the $10 billion reported for 2021, and the company admits its forecasts account for even more to be poured into the venture next year.

“We expect Reality Labs’ 2023 operating losses to widen significantly over the year,” said Dave Wenner, Meta’s chief financial officer.

It would be a dangerous venture with a clear end goal in mind, a cost gauntlet for the company to manage amid the global economic crisis, in pursuit of the glory of pioneering a new technological standard for all corners of life. But the tech giant’s gambit is even more perplexing for the simple reason that it doesn’t yet have a compelling use case for metaverse technology. Despite all the money pouring into it, the virtual reality oasis that Zuckerberg promises at every company announcement has yet to materialize, and every iteration presented so far has prompted comments that the core idea of ​​the metaverse is a waste of time.

In response to a question about the implementation of the metaverse technology, Zuckerberg indicated that although people may argue that it is a bad investment, he believes that the technology will be important for the future and is therefore worth investing in. Speaking about the nervousness of investors, he also emphasized that those with patience will be rewarded in due course. Whether this will pay off is anyone’s guess.

The Guardian reported that Meta shares fell 19% after the end of the call, valuing the company by more than $65 billion, and the stock as a whole is trading nearly 60% lower than in Q1.

Reality Labs’ increased expenses are due in part to the release of Meta’s upcoming Quest 3 virtual reality headset, as well as the annual salaries of new employees. Indeed, Meta has grown its workforce by 28% over the past year, with 87,314 employees now working for the company.

With wage costs this high, Meta could replicate the cost-cutting moves of other major tech companies, such as Microsoft’s hiring slowdown or even Twilio’s 11% workforce cut. The company has already canceled internships for 2023, with applicants who had already been offered internships informed of the cost-cutting measure via email, as the company admitted it was evaluating its 2023 hiring strategy.

Of course, Reality Labs was far from the only factor contributing to Meta’s decline this quarter. As with Microsoft’s quarterly earnings, the strength of the dollar during the period hurt international sales and advertising demand in the sector is slowing as inflation bites into company budgets. Apple’s implementation of greater privacy measures in iOS 14.5 also affected the effectiveness of Facebook’s identifying trackers, a move that Meta says will directly cost it $10 billion in 2022.

The competition is proving troubling for the company as it faces a real rival in TikTok, Gen-Z’s favorite app. The company, owned by Chinese tech giant ByteDance, offers users short-form videos and a sophisticated content algorithm in a strategy that has become both wildly popular and incredibly profitable, despite facing calls for it to be removed from national security app stores.

“To stay competitive with the likes of TikTok, whose UK sales jumped six-fold to almost $1 billion earlier this month, Meta is currently testing post scheduling and Instagram Reels with an in-app tool, which would be a significant boost about the capabilities of the content programming platform,” said Zarnaz Arlia, Chief Marketing Officer at Facebook and Instagram Marketing Partner Emplifi.

On Meta’s latest earnings call, Zuckerberg aimed to assuage investors’ fears, saying the firm would “accelerate” Reality Labs’ investment in the coming years to facilitate company-wide growth and increase operating income. Its announced strategy is to dedicate a portion of profits from its “Family of Apps” — Facebook, WhatsApp and Instagram — to Reality Labs and other research and development ventures, while retaining enough for a good return to shareholders.

It’s hard to think of a word currently more associated with metaverse technology than “faith.” Even the most bullish investors and ardent supporters of the web3 prospect are likely to raise their eyebrows at these results and begin to engage with the longstanding criticism of the metaverse technology. Being asked to trust a concept that has yet to spark the technological revolution Zuck promised and is the subject of jokes by many in the tech community could prove too much for investors next year.

© Denis Publishing House

Read more: profit from business strategy with augmented reality Meta

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