The value of Meta fell by $700 billion. Wall Street calls it a “train wreck.”

Facebook’s parent company, Meta Platforms, is making a huge investment in virtual reality, but actual reality looks like a disaster.

Meta shares tumbled 24% on Thursday to their lowest level in nearly four years after an earnings report that a Wall Street analyst described as a “train wreck.” That’s a far cry from the company’s position nearly a year ago, when CEO Mark Zuckerberg announced with much fanfare on October 28, 2021 that Facebook was change your name to Meta Platforms to emphasize its focus on the “metaverse.”

Last fall, Facebook was still riding high: Its market value peaked at more than $1 trillion in September 2021. Revenue and profits soared as advertisers flocked to Facebook and Instagram to reach their billions of users.

Of course, virtually the entire tech industry has taken a beating this year, but Meta’s decline far outpaced the entire sector, with its shares down 67% year-over-year compared to the tech Nasdaq’s 31% drop over the same month-to-month cycle . The Meta crash translates into an impressive loss of around $700 billion in market value.

On Thursday, Meta’s market cap sank to $268 billion, down from more than $1 trillion in September 2021.

The company’s struggles raise questions about its all-in bet on the metaverse, and whether the social media company could suffer the fate of other big businesses whose bets on the future have failed to pay off. In the short term, Meta’s core Facebook business faces challenges as the economy slows and advertisers cut spending.

“Last night’s Meta results were an absolute disaster that speaks to the widespread digital advertising crisis ahead for Zuckerberg & Co. as they make a risky and embarrassing bet on the meta universe,” Wedbush analyst Dan Ives said in a report.

Here are three key issues hitting Meta stock and deepening questions about the longer-term outlook.

$9.4 billion lost in the metaverse

On a conference call Wednesday to discuss Meta’s latest earnings, Zuckerberg told investors he was “pretty confident it’s going in a good direction.”

Investors are not convinced. The company is making what amounts to an extremely expensive bet on its ability to transform itself into a virtual reality giant and whether this technology can drive the next phase in Meta’s growth.

While such strategic turns can take years for large companies to execute — as happened with IBM and Microsoft when they shifted from selling hardware to software — early results for Meta have been dismal. For the first nine months of the year, Meta lost $9.4 billion from its meta universe unit, Reality Labs. The unit is expected to have “significantly” wider operating losses in 2023, the company said on Wednesday.

Investors are skeptical because, at least so far, users aren’t exactly flocking to the newly created metaverse. Unlike the longer timelines for building businesses common in Silicon Valley, Wall Street values ​​companies based on short-term returns rather than hazier forecasts that stretch years into the future.

Horizon Worlds, Meta’s new virtual space, has lowered its goal for monthly active users to 280,000 from 500,000, but the space is attracting fewer than 200,000, the Wall Street Journal reported earlier this month.

“[I]Investors should stay on the sidelines as it will take many years before advances in the metaverse can truly be monetized,” Angelo Zino, senior equity analyst at CFRA Research, told investors in a research note.

Slower Facebook growth

By comparison, Facebook had a massive base of 1.98 billion daily active users on average in September – a 3% increase from a year ago.

That might seem respectable, but it’s a far cry from the massive growth Facebook experienced in its earlier years. And the slower growth comes after Facebook said in February that it had lost users for the first time in its history.

The social media powerhouse, Meta’s massive moneymaker, is battling challenges from newcomers like TikTok, which is poaching younger users.

Advertising challenges

Meta’s lifeblood is ad revenue recorded by Facebook, Instagram and WhatsApp, with businesses eager to reach their billions of daily users. But ad revenue fell in the latest quarter, with sales falling 3.7% and adding to investor concerns.

Meta announces its first hiring freeze, signaling a tech slowdown

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When it comes to advertising, Meta faces a double whammy. The economic slowdown means advertisers are cutting back on spending, with the company citing an “uncertain and volatile macroeconomic landscape” for ads on Wednesday. The company is also grappling with the impact of Apple’s privacy changes on the apps that run on its devices. That change means users can ask apps not to track them, which Facebook said will cost it $10 billion this year.

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