Key Highlights:
- Meta Reality Labs has had a tough year;
- Meta’s metaverse hopes not coming to fruition;
- Zuckerberg intimates to investors about his metaverse goals;
- The $9.4 billion hole in the pocket,
- Can the Metaverse achieve mass adoption?
Source: Google Images | Zuckerberg
Meta’s aspirations to break into the metaverse are currently being butchered as the tech giant continues to record massive losses from all ends.
Meta shares practically returned to the lowest price recorded since January 2016, falling as low as $92.60 on October 31. This massive crash came after the company released its earnings report for Q3 2022, which revealed even worse realities for the struggling tech giant.
The current status of Meta is a far cry from where it was a year ago after Meta CEO Mark Zuckerberg — amid massive fanfare and expectations of big things — announced that Facebook was changing its name to Meta Platforms, a move that highlighted the company’s focus on the metaverse.
Around that time, Facebook’s financial situation was in a euphoric state, with its market capitalization exceeding the $1 trillion mark. At the same time, revenue and profits were beyond impressive as advertisers rushed to utilize Facebook and Instagram for their cumulative 4 billion users.
Source: The Block | Meta’s 5-Year Market Cap
To be fair, the entire tech industry is under intense pressure this year, with several tech companies losing huge chunks of share price and total valuation. However, Meta’s downturn has far exceeded that of the general market average, with its shares down by about 73% from October 2021, compared to the average 35% of the tech-heavy Nasdaq index over the same period.
Source: The Block | Meta’s 5-Year Performance
Meta’s Aggressive Metaverse Campaign
In a conference call to discuss his company’s latest earnings report with investors, Zuckerberg noted that he was “pretty confident this is going in a good direction.” However, investors do not share Zuckerberg’s enthusiasm about the state of things at the company.
At the call, the Meta co-founder explained that his metaverse campaign goes beyond efforts to develop its virtual reality business. He noted that Meta’s goals also involve doing research and development projects aimed at creating neural interfacing and augmented reality technology.
Source: The Verge
Zuckerberg said: “Look, I get that a lot of people might disagree with this investment [in the metaverse], but from what I can tell, I think this is going to be a very important thing.” He added: “I think it would be a mistake for us to not focus on any of these areas which I think are going to be fundamentally important to the future.”
The multibillionaire has immersed himself in diligent work for over a year to sell his metaverse dream, a digital environment where people can work, play games, and socialize. Sadly, it has yet to yield the desired results.
$9.4 Billion in Metaverse Losses
Meta has made what can be described as a really expensive bet into making itself the major player in virtual reality and aims to use this technology as fuel for the next phase of growth for the company.
While such ambitions are sure to take time to achieve, as can be seen when IBM and Microsoft pivoted from selling computer hardware to software, Meta’s early days in the virtual reality space have been grim.
One of the grim data released in the earnings call was that Meta’s metaverse arm, Reality Labs, had lost a whopping $9.4 billion in the first nine months of 2022, and lost $3.6 billion in Q3 alone. Even worse, the company said in the report that it expects the department to have even wider operating losses next year. These comments served as fuel for the recent crash in the company’s share price.
Source: Business Insider | Reality Labs Data
Investors remain skeptical about Meta’s plans to keep pursuing its ambition in the metaverse as it remains to be seen how much interest and adoption the metaverse is gathering, especially in these trying times.
Meta’s latest virtual space, Horizon Worlds, previously slashed its expected active monthly users from 500,000 to 280,000 but still failed to meet this target after attracting only 200,000 active users.
Commenting on the prospects of the metaverse, Angelo Zino, a senior equity analyst at CFRA Research, said in a research note that “investors should remain on the sidelines as it will take many years before progress in the metaverse can be truly monetized.”
Speaking on its losses in its metaverse endeavors, Meta noted in its report:
“We do anticipate that Reality Labs’ operating losses in 2023 will grow significantly year-over-year. Beyond 2023, we expect to pace Reality Labs investments such that we can achieve our goal of growing overall company operating income in the long run.”
Also, updating its 2022 capital expenditures, including principal payments on finance leases, the company noted:
“For 2023, we expect capital expenditures to be $34-39 billion, driven by our investments in data centers, servers, and network infrastructure. An increase in AI capacity is substantially driving all of our capital expenditure growth in 2023.”
On Twitter, FinTwit is making some hilarious memes:
Source: Twitter
Meta’s Grim Earning Report
Outside of its metaverse, in a recent earning report, Meta revealed that its net income had dropped to $4.39 billion in Q3 2022, a devastating 52.1% drop from the $9.19 billion recorded last year. As of October 31, Meta’s market value sits at $247 billion, a significant fallout from its over $1 trillion valuation in September 2021.
Source: Meta
Additionally, the report showed that Meta’s total costs and expenses for the quarter were $22.05 billion, a notable jump of 19% (YoY). This includes an impairment loss of $413 million for some operating leases as part of the company’s ongoing efforts to match the footprint of its office facilities with its anticipated operating needs.
Final Word: The Path to Mass Adoption
2022 has not been particularly friendly for emerging markets and technologies, including the metaverse. Stories such as Meta’s struggles with its virtual reality project are common in the metaverse space, with billions of dollars worth of investments and efforts hanging on the precipice. This has put the hopes and aspirations of the metaverse achieving mass adoption on hold.
Source: Google Images
Achieving mass adoption would be no easy task for hopefuls and is likely to take years of work. Echoing this point is Sebastien Borget, the co-founder of one of the biggest players in the metaverse The Sandbox. Borget mentioned in a previous interview with AFP that while big brands are trooping into the metaverse, the path to becoming profitable remains unclear and that mass adoption might still be years away.
The metaverse is well-positioned to play a critical role in the evolution of the internet but is lacking in a lot of infrastructures to achieve mass adoption. Some of these infrastructures include internet bandwidth and hardware, data and security, and legal systems in the metaverse.
