Meta Value Drops More Than $65 Billion Amid Falling Sales, Rising Costs

Investors lost more than $65 billion of Meta’s market capitalization on Wednesday after Facebook’s owner reported another quarter of a decline in revenue and failed to convince investors that big bets on the metaverse and artificial intelligence were paying off.

Meta shares fell 19 percent after hours as the world’s largest social media platform joined other big tech groups in warning that the economic downturn is hitting its advertising business as brands spend less on marketing.

In addition to broader macroeconomic challenges, Meta is facing a range of challenges, including increasing competition for its Instagram platform from competitors such as short video app TikTok, and difficulty targeting and measuring ads due to changes to Apple’s privacy policy.

The company said it expects current-quarter revenue in the range of $30 billion to $32.5 billion, compared to analysts’ expectations of $32.2 billion.

Third-quarter net income fell 52 percent to $4.4 billion, according to S&P Capital IQ, below the consensus estimate of $5 billion. Meanwhile, revenue fell 4 percent to $27.71 billion, the slowest pace of growth since going public in 2012 after falling 1 percent last quarter. It was slightly better than analysts’ forecasts of a 5% drop.

Mark Zuckerberg, Meta’s founder and chief executive, warned that the company was facing “immediate revenue challenges”but said “there are grounds for a return to stronger revenue growth.”

While speaking with analysts, he doubled down on his biggest bets, including developing a short video format to compete with TikTok, business messaging and the metaverse. He tried to reassure investors that investing in these areas would pay off in the long run.

“I appreciate patience and think that those who are patient and invest in us will eventually be rewarded,”he said, claiming that the company is doing “leading work”on a metaverse that will have “historic significance.”

Meta’s disappointing earnings came amid a wider sell-off in Big Tech shares. Shares of Google parent company Alphabet tumbled more than 9% on Wednesday after it reported an unexpectedly severe slowdown in its core search ad business, while Snap’s shares tumbled last week after the company posted its lowest performance yet. growth since going public in 2017.

Meta, which has rapidly increased its headcount during the pandemic, has faced scrutiny from investors for significant spending on Zuckerberg’s vision of creating a world filled with digital avatars known as the metaverse. Like other virtual and augmented reality projects that Meta is working on, it is not expected to turn a profit for many years.

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

“The meta is wobbly when it comes to the current state of its business,”said Debra Aho Williamson, an analyst at Insider Intelligence. “Zuckerberg’s decision to focus his company on the future prospects of the metaverse has taken his attention away from the sad realities of today.”

The company estimates total spending for 2022 will be in the range of $85 billion to $87 billion, narrowing down from its previous forecast of $85 billion to $88 billion. However, he expected 2023 spending to be between $96 billion and $101 billion, despite recent attempts to cut costs and freeze most hiring.

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

But he warned that “these moves … will take time to play out” and that some attempts to find ways to save money, such as reducing office space as more employees work from home, will result in “additional costs in the near future.”

Zuckerberg told analysts that investment in his AI capabilities has fueled capital expenditures, but the technology will help boost views for his short video format.

Analysts also expressed concern about rising costs. “To sum up how investors feel right now, there are too many experiential rates compared to the tested core rates,” said Brent Till, an analyst at Jefferies.