Meta’s value plunges $89 billion amid falling sales and rising costs

Investors wiped more than $89 billion from Meta’s market capitalization on Thursday after the Facebook owner announced another quarter of revenue declines and failed to convince investors that big bets on the Metaverse and artificial intelligence were paying off.

Shares of Meta fell 25% in New York as the world’s largest social media platform joined other Big Tech groups in warning that an economic downturn was hammering its advertising business, brands spending less on marketing.

In addition to broader macro issues, Meta faces a confluence of challenges, including growing competition for its Instagram platform from rivals such as short-form video app TikTok and difficulties in targeting and measuring popularity. advertising due to changes to Apple’s privacy policy.

The company said late Wednesday that it expects current-quarter revenue to be between $30 billion and $32.5 billion, compared with $32.2 billion for analysts.

Net profit in the third quarter fell 52% to $4.4 billion, below consensus estimates of $5 billion, according to S&P Capital IQ. Meanwhile, revenue fell 4% to $27.71 billion, the slowest pace of growth since its IPO in 2012, after falling 1% in the last quarter. That was slightly better than analysts’ estimates for a 5% decline.

Mark Zuckerberg, founder and chief executive of Meta, warned the company faced “near-term revenue challenges” but said “the fundamentals are there for a return to stronger revenue growth” .

On a call with analysts, he doubled down on his biggest bets, including developing an abbreviated video format to rival TikTok, business messaging and the metaverse. He tried to reassure investors that investments in these areas would pay off in the long run.

“I appreciate patience and believe that those who are patient and invest with us will eventually be rewarded,” he said, arguing that the company was doing “leading edge work” on the metaverse that would be ” of historical significance”.

Meta’s disappointing earnings came amid a broader sell-off in Big Tech stocks. Shares of Google’s parent company Alphabet fell more than 9% on Wednesday after reporting an unexpected slowdown in its core search ads business, while Snap’s stock plunged last week after posting its slowest growth rate since its IPO in 2017.

Meta, which has rapidly increased its workforce during the coronavirus pandemic, has come under intense scrutiny from investors for spending heavily on Zuckerberg’s vision to build a world filled with digital avatars known as the Metaverse. . Like other virtual and augmented reality projects Meta is working on, this isn’t expected to generate returns for many years.

Revenue for Reality Labs, its metaverse unit, nearly halved in the third quarter to $285 million, while losses were $3.7 billion from $2.6 billion a year ago. The company said it expects the unit’s operating losses to “increase significantly year over year” in 2023.

“Meta is on shaky legs when it comes to the current state of its business,” said Insider Intelligence analyst Debra Aho Williamson. “Zuckerberg’s decision to focus his company on the future promise of the metaverse has diverted his attention from the unfortunate realities of today.”

The company estimated total spending for 2022 would be between $85 billion and $87 billion, narrowing from its earlier outlook of $85 billion to $88 billion. However, it projected spending in the range of $96 billion to $101 billion in 2023 despite its recent attempts to cut costs and freeze most hiring.

The company said it was “making significant changes across the board to operate more efficiently” and had “increased control over all areas of operating expenses.”

But he warned “these moves. . . will take time to materialize” and that some attempts to find savings, such as reducing its office space as more and more employees work from home, would lead to “additional short-term costs”.

Zuckerberg told analysts that investment in his artificial intelligence capabilities helped boost capital spending, but the technology would help boost views of his short-form video.

Analysts have also raised concerns about increased spending. “To sum up what investors are feeling right now is that there are just too many experimental bets compared to proven heart bets,” said Jefferies analyst Brent Thill.