Washington, Feb. 3 (US): Recently renamed Meta is investing heavily in its future “metaverse” venture, but for now it relies on advertising revenue for nearly all of its income, the AP reports.
So when it announced sharply higher costs but gave a poor revenue outlook late Wednesday, investors were spooked — and drove nearly $200 billion off the valuation of the company formerly known as Facebook.
Shares of Meta fell 22.9% to $249.05 in after-hours trading. If the decline continues until the market open on Thursday, the company’s total value, known as its market capitalization, is on track to decline by more than the size of the entire Greek economy, according to data from the World Bank.
The metaverse is a kind of internet brought to life, or at least rendered in 3D. Mark Zuckerberg, CEO of Meta, described it as a “virtual environment” in which you can immerse yourself instead of just staring at a screen.
In theory, the metaverse would be a place where people could meet, work and play using virtual reality headsets, augmented reality glasses, smartphone apps, or other devices. But the construction is unlikely to be cheap.
Meta invested more than $10 billion in the Reality Labs segment — which includes virtual reality headsets and augmented reality technology — in 2021, which contributed to lower quarter earnings. It expanded its workforce by 23%, ending the year with 71,970 employees, most of them in technical positions.
The company also said revenue in the current quarter is likely to come in below market expectations, due in part to increased competition from TikTok and other rival platforms vying for people’s attention.
Sheryl Sandberg, chief operating officer of Meta, said on a conference call with analysts that global supply chain issues, labor shortages and earlier-than-usual vacation spending by advertisers are weighing on the company’s advertising sales.
Another problem: Apple’s recent privacy changes are making it more difficult for companies like Meta to track people for advertising purposes, which is also putting pressure on the company’s revenue. For months now, Meta has been warning investors that its revenue cannot continue to grow at the rapid pace that they are accustomed to.
Changing people’s behavior online also limits Meta’s ability to make money. More people are watching videos, like Instagram’s Reels (a TikTok clone), and this makes less money than more established features.
The Menlo Park, California-based company said it earned $10.29 billion, or $3.67 per share, in the final three months of 2021. That’s 8% less than $11.22 billion, or $3.88 per share, in the same period the previous year. Revenue rose 20% to $33.67 billion.
Analysts, on average, expected earnings of $3.85 per share on revenue of $33.36 billion, according to a survey by FactSet.
Take Meta Platforms Inc. its new name last fall to underscore Zuckerberg’s new focus on the metaverse. Since then, the company has shifted resources and hired engineers — including from competitors like Apple and Google — who can help realize his vision.
Zuckerberg is betting that the metaverse will be the next generation of the internet because he believes it will be a huge part of the digital economy.
He predicts that people will start to see Meta as a “metaverse company” in the coming years, rather than as a social media company.
For now, though, the metaverse only exists as an amorphous idea conceptualized – and named – by science fiction author Neal Stephenson three decades ago. It is not yet clear if it will be the next iteration of human-computer interaction the way Zuckerberg sees it, or just another playground for technologists and gamers.
Meta said it expects revenue of between $27 billion and $29 billion for the current quarter, lower than the $30.2 billion analysts have been expecting.
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