Meta’s shares plummeted on Wednesday after the company announced mixed results in its third-quarter earnings report, along with a billion-dollar loss at the division dedicated to its ambitious “metaverse” project.
Facebook’s parent company beat analysts’ revenue predictions but offered a weak forecast for the next quarter. It reported revenue of $27.7 billion in the third quarter, higher than the $27.4 billion expected, but down 4% from the same period last year. Its earnings per share, which accounts for expenses, were $1.64, short of the $1.89 expected.
Wednesday’s earnings report marks the latest in a series of tough earnings reports for Meta, which has invested heavily in new products that it has struggled to monetize over the past year. In February, the company lost $230 billion in market value in what was the biggest one-day loss in US history, its shares falling 26%. The company’s shares fell 18% in after-hours trading on Wednesday as investor concerns grow about the company’s use of resources on new products.
Target costs and expenses increased 19% year over year in the third quarter. He has invested large amounts of money in the metaverse, his virtual reality project, and so far has seen little return. Reality Labs, its metaverse segment, posted losses of $3.7 billion this quarter, and the company said it expects those losses to “grow significantly year over year” in 2023.
Struggling to compete with the growing power of TikTok, Meta also invested heavily in its video content product Reels, but has struggled with monetization. The losses reported Wednesday show that Meta has focused perhaps too much on its new ventures, said Debra Aho Williamson, principal analyst at Insider Intelligence.
“Meta is on its feet when it comes to the current state of its business,” he said. “To return to stronger growth, Meta needs to change its business. It would benefit from less priority on the metaverse and more on fixing its core business.”
Investors on Wednesday’s earnings call expressed concern about the losses and asked CEO Mark Zuckerberg about the reasoning behind these “experimental bets.” Zuckerberg defended his choices to focus on the metaverse and other new products, saying he’s confident they’ll pay off.
“Over time, these will end up being very important investments for the future of our business,” he said. “This is one of the most historic works we are doing. People will watch again [this] decades from now and talk about the importance of the work that was done here.”
Despite the setbacks, Zuckerberg said he was “pleased” with the “strong engagement” driven by Reels this quarter and said the trends look “better from what I can see than some of the comments I’ve seen suggest.”
“While we face near-term revenue challenges, the fundamentals are in place to return to stronger revenue growth,” he said.
Meta’s losses come as the tech industry and the broader market struggle with economic headwinds, including rising inflation and fears of a recession, with Google parent Alphabet and Microsoft both reporting disappointing results of the third quarter this week.
In addition to these broader factors, Meta has also struggled with changes to Apple’s privacy policies enacted in 2021 that undermined its core advertising model, which the company predicted would lose about $10 billion projected in advertising revenue in 2022.
Meta announced a hiring freeze and possible restructuring in September, prompting many to prepare for layoffs. This comes after its July earnings report, when it projected its first revenue decline since going public in 2012.
In a statement accompanying the report, Meta said it would “maintain some teams in terms of employees, cut others and invest workforce growth only in our highest priorities.”
“As a result, we expect headcount at the end of 2023 to be roughly in line with third quarter 2022 levels,” the company said.