Investors punish Zuckerberg as costly metaverse pitch falls flat
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[October 27, 2022] By
Chavi Mehta and Katie Paul
(Reuters) - Wall Street is losing patience
over Meta boss Mark Zuckerberg's enormous and experimental bets on his
metaverse project that helped drive up the company's overall costs by a
fifth in the third quarter.
Investors rushed to dump Meta Platforms Inc's stock after hours, pushing
it down 20% and wiping $67 billion off its market value after the
company posted its fourth straight decline in quarterly profit.
The Facebook-parent said its overall expenses could rise as much as 16%
next year and anticipates that operating losses at Reality Labs - the
unit responsible for bringing the metaverse to life - "will grow
significantly" next year.
One Meta shareholder had recently voiced concerns calling the company's
investments "super-sized and terrifying". Analysts on Wednesday called
them "confusing and confounding" and Meta's inability to cut costs
"extremely disturbing".
On a post-earnings conference call, Jefferies analyst Brent Thill asked
executives: "I think kind of summing up how investors are feeling right
now is that there are just too many experimental bets versus proven bets
on the core ... I think everyone would love to hear why you think this
pays off."
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In the July-September quarter, losses at Reality Labs ballooned to a
whopping $3.67 billion from $2.63 billion a year earlier. Revenue nearly
halved.
"It would be a mistake for us to not focus on any of these areas that
will be fundamentally important to our future," Zuckerberg said on the
call.
"I know that sometimes when we ship a product ... people say: 'Hey,
you're spending all this money, and you've produced this thing,' and I
think that's not really the right way to think about it."
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A 3D printed Facebook's new rebrand logo
Meta is seen in front of displayed stock graph in this illustration
taken on November 2, 2021. REUTERS/Dado Ruvic/Illustration
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"...we're doing leading work that will become ... eventually mature
products at different cadences in different periods of time over the
next five to 10 years."
He spoke about the company's various efforts, including a recently
unveiled virtual and mixed reality headset called Quest Pro that is
priced at $1,500 and a social metaverse platform where people can
express themselves via avatars.
He said Meta is investing in two other areas: augmented reality and
neural interfaces.
BIG GAMBLE
"The metaverse ... feels like a one big gamble given the economic
crisis," said Paolo Pescatore, an analyst at PP Foresight, adding
that the journey ahead was going to be "long and painful".
"People are not rushing out of their seats to buy a VR headset or
even watch 360 degree videos ... The new device still feels like an
expensive toy," he said.
At a time when other tech companies such as Microsoft and
Google-parent Alphabet are cutting jobs or slowing hiring, Meta's
headcount surged 32% in the third quarter from the end of the
second.
In an open letter to Zuckerberg on Monday, Meta shareholder
Altimeter Capital Management called on Meta to streamline by cutting
jobs and capital expenditure.
The fund suggested Meta cap annual investments in the metaverse to
$5 billion instead of the current $10 billion.
(Reporting by Chavi Mehta in Bengaluru and Katie Paul in Palo Alto,
Calif, additional reporting by Sheila Dang in Dallas; Writing by
Sayantani Ghosh; Editing by Sam Holmes)
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