Wall Street is concerned because Meta is putting a lot of virtual eggs — and billions of dollars — into the metaverse basket.
The corporation formerly known as Facebook revealed a rare earnings decline on Thursday, owing to a significant increase in spending, weak ad revenue growth, competition from TikTok, and fewer daily U.S. users on its flagship platform.
Simultaneously, it put more than $10 billion into CEO Mark Zuckerberg’s grandiose goal to turn Meta Platforms Inc. into virtual reality — or, to put it another way, a “metaverse-based” — corporation.
In afternoon trading on Thursday, Meta’s shares plunged more than 26% to $237.76, slashing the company’s whole value, or market capitalization, by more than $230 billion. That’s the biggest one-day drop in a company’s history.
“For its preoccupation with the metaverse, Meta is compromising its basic business model,” said Rachel Jones, an analyst with the research firm GlobalData. “Being big on the metaverse isn’t a bad thing – the technology is set to be massive and bring a plethora of options — but it will take at least another decade to get rolling.”
While IT businesses are used to placing large bets on futuristic-sounding ideas that occasionally become reality — and come with a large payoff — Wall Street is wary of risk. There’s also the unpleasant issue that Facebook’s existing platform continues to struggle with destructive real-world impacts.
According to Mike Proulx, research director at Forrester Research, there is “continuing concern that Facebook’s historical issues may follow Meta into the metaverse.” “The company has a long way to go to persuade consumers that Meta’s manifestation of the metaverse is a positive thing,” says one analyst.
Since changing its name last fall, Meta has been transferring resources and attracting engineers who can help Zuckerberg accomplish his goal, including from competitors like Apple and Google.
Consider the metaverse to be the internet brought to life, or at the very least portrayed in three dimensions. It’s a “virtual environment,” according to Zuckerberg, in which you can immerse yourself rather than merely stare at a screen. Virtual reality headsets, augmented reality glasses, smartphone apps, and other gadgets might theoretically be used to meet, work, and play in the metaverse.
It may sound like science fiction, but computers that fit in your pocket, driverless cars, and microwaves that talk to you were all science fiction not long ago. Technology advances whether we like it or not, and “fortune favors the bold,” as a classic Facebook motivational banner in the company’s headquarters puts it. Despite a massive pushback to Facebook’s issues, which range from disinformation and privacy mistakes to teen mental health and hate speech, Zuckerberg maintains that risky investments to steer the firm in new directions have typically paid off.
In a conference call on Wednesday, Zuckerberg said the company’s efforts this year will be focused on Reels, an Instagram-based TikTok-like short-form video service, as well as messaging, ads, commerce, privacy, artificial intelligence, and “of course, the metaverse.”
“Making significant progress in all seven of these areas will improve the services we provide today and will contribute to the powering of a social, intuitive, and engaging metaverse,” he said. “This completely realized vision is still a ways off,” he noted, “and while the direction is apparent, our route ahead is not entirely defined.”
While Wall Street’s metaverse excitement appears to lag well behind Zuckerberg’s, Meta’s competitors are accelerating their own metaverse initiatives. Apple, Google, and Microsoft are among them, with Microsoft recently purchasing the video game giant Activision Blizzard in the hopes of boosting its metaverse ambitions.
But it isn’t just the major corporations that are affected. From November 2021 to January of this year, 86 applications added “metaverse” to their title or description, according to app analytics firm SensorTower. To date, the term “metaverse” appears in the title or description of 552 mobile apps.
Mark Kelley of Stifel Nicolaus tried to reassure investors by pointing out that Zuckerberg has not one, but seven investment goals for the company this year. He doesn’t believe Meta’s initial aim of 1 billion metaverse users is unrealistic — and, more crucially, he believes only 40% of them will be gamers, indicating the platform’s broader appeal.
Matthew Ball, a metaverse enthusiast and venture capitalist who created an index fund of metaverse-related companies months before Facebook’s rename, is unfazed by Meta’s stock drop. Ball’s index includes 45 equities, one of which is Meta.
“Mark’s focus on next-generation internet is actually justified by the fact that they can see growth slowing in their core business, that users are shifting elsewhere, and in particular, those young users are shifting to these virtual and immersive worlds where they’re a small participant and where their investments are focused,” he said.
