Mark Zuckerberg wants to put a lot of money into the metaverse, but investors are wary.
Last October, Mark Zuckerberg announced to the world that he was all in on the metaverse, and that the venture would only grow more costly over time. He's lowering his tone now that his company's stock price has been pounded in recent months.
Due to "our present business growth levels," Meta will "pause the pace of certain of our investments," according to Zuckerberg during the company's first-quarter earnings call on Wednesday. Meta's first-quarter earnings were $7.5 billion, down 21% from the previous quarter. The company's revenue increased 7% to $27.9 billion, the weakest growth rate since it went public a decade ago. Its projected spending range for 2022 has been reduced by $3 billion. Make no mistake: Zuckerberg continues to invest billions of dollars each year in developing gadgets and software for the metaverse, a notion he believes will one day eclipse the mobile internet. Meta's Reality Labs subsidiary, which develops the Quest VR headset and future AR glasses, employs around 17,000 people and lost about $3 billion in the most recent quarter. The issue is that Meta's investors are hesitant to commit so much money right now, particularly when the payback is years away.A stock price may sometimes tell you all you need to know about a company. Since it rebranded from Facebook in October, the price of Meta has dropped over 50%, erasing the previous five years of growth. That's when Zuckerberg stated that he was already spending $10 billion a year on Reality Labs and that he anticipated the investment to expand, despite the fact that he wouldn't see a return until the second part of this decade.
Investors could have reacted favourably to the Meta shift if his primary business of ad-driven social networking was expanding at the same rate as in previous years. But the timing couldn't have been worse: Facebook is expanding at a slower pace than it has in the past, due in part to the exodus of younger users. Time spent on Facebook and Instagram is being eaten up by TikTok. And Meta has already lost more than $10 billion due to Apple's ad tracking adjustments. Meanwhile, regulations have restricted Zuckerberg's ability to make large, transformational social media acquisitions that may re-ignite growth.
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Facebook is still expanding, but at a far slower rate than in the past. Following its first-ever dip in daily users in the fourth quarter of 2021, the blue app grew daily users by just 4% to 1.96 billion last quarter, while daily users across Instagram, WhatsApp, and Facebook increased marginally from 2.82 billion to 2.87 billion. Meta's stock price jumped more than 15% when it posted better-than-expected profits per share in the first quarter, despite Wall Street's low expectations.
"Meta's ad business continues to confront some very genuine issues," said Insider Intelligence's Jasmine Enberg, a lead analyst. "Of course, Facebook has faced challenges before, but the iOS changes represent the first direct danger to its ad business. There's a perfect storm going right for Meta's ad income, thanks to the growth of TikTok, brand safety concerns, and a change in social network user behaviour."
In the near term, it's apparent that Zuckerberg hopes that duplicating TikTok would help it expand again. He stated on Wednesday that the company's short-form video product, Reels, accounted for 20% of Instagram time and that video consumption was already more than half of Facebook time. Meta is still in the early stages of monetizing Reels with advertisements, but it's following in the footsteps of Mark Zuckerberg, who successfully copied Snapchat's Stories feature. Facebook is still expanding, but at a far slower rate than in the past. Following its first-ever dip in daily users in the fourth quarter of 2021, the blue app grew daily users by just 4% to 1.96 billion last quarter, while daily users across Instagram, WhatsApp, and Facebook increased marginally from 2.82 billion to 2.87 billion. Meta's stock price jumped more than 15% when it posted better-than-expected profits per share in the first quarter, despite Wall Street's low expectations.
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