Meta is putting a lot of virtual eggs – and billions of dollars – into the metaverse’s basket, which seems to be starting to worry Wall Street.
Shares of the company formerly known as Facebook took a historic tumble on Thursday after the social media giant reported a rare drop in profits due to a surge in spending, fragile growth in advertising revenue, competition from TikTok and a decline in the number of daily US users on its flagship platform.
At the same time, he invested more than US$10 billion in his big boss, Mark Zuckerberg’s, ambitious plan to turn Meta Platforms into a virtual reality company – in effect, a “metaverse-based” company.
Shares of Meta fell 26.4% to US$237.76 (C$301.39) at the Nasdaq’s close on Thursday, slashing the company’s market value by more than US$230 billion. This is the largest loss in value ever recorded for a single company in a single day.
“Meta is sacrificing its core business model with its fascination with the metaverse,” said Rachel Jones, analyst at research firm GlobalData. “Betting big on the metaverse isn’t a bad thing — the technology should be huge and provide a wealth of business opportunities — but it will take at least another decade to really take off. »
While tech companies are used to making big bets on futuristic-looking ideas that sometimes become reality — and generate huge payoffs when they do — Wall Street doesn’t like uncertainty. Not to mention that Meta must also deal with managing the toxic effects of its existing platform in the real world.
There is “ongoing concern that existing challenges at Facebook may follow Meta into the metaverse,” observed Mike Proulx, research director at Forrester Research. “The company has work to do to convince consumers that Meta’s idea of the metaverse is a good thing. »
Since Meta adopted its new name last fall, the company has shifted resources and hired engineers — including from rivals like Apple and Google — who can help Zuckerberg realize his vision.
You have to imagine the metaverse as a kind of Internet that would come to life, or at least be recreated in 3D. Mr. Zuckerberg describes it as a “virtual environment” in which one can immerse oneself instead of simply staring at a screen. Theoretically, the metaverse would be a place where people can meet, work, and play using virtual reality headsets, augmented reality glasses, phone apps, or other devices.
It may sound like science fiction, but again, not so long ago, few people imagined that computers would fit in a trouser pocket, that automobiles would drive themselves, and that microwave ovens would talk to their owner. Technology is advancing whether we like it or not and, to quote a motivational poster at the company’s headquarters, “fortune smiles on bold people.”
Despite the backlash Facebook is facing for issues like misinformation, breaches of privacy, compromised teen mental health and hate speech, Zuckerberg continues to believe that bold bets to steer the company into new directions have generally paid off.
Several investment priorities
In a conference call on Wednesday, Zuckerberg said the company’s investments this year would focus on Reels — a short-video sharing service for Instagram reminiscent of TikTok — as well as messaging, ads, commerce, privacy, artificial intelligence “and, of course, the metaverse”.
“Achieving meaningful progress in these seven areas will improve the services we offer today and help fuel a social, intuitive and entertaining metaverse,” he said. But he acknowledged that “this fully realized vision is still a long way off, and while the direction is clear, the path ahead is not fully defined”.
But while Wall Street’s metaverse optimism seems to be falling far short of Zuckerberg’s, Meta’s rivals are stepping up their own metaverse projects. These include Apple, Google and Microsoft, which recently acquired video game company Activision Blizzard in hopes of accelerating its ambitions for the metaverse.
But it’s not just the big companies. According to app analytics firm SensorTower, 86 apps have added “metaverse” to their title or description since November. To date, 552 mobile applications include the term “metaverse” in their title or description.
Stifel analyst Mark Kelley sought to calm investors down, noting that Mr Zuckerberg had set not one, but seven investment priorities for the company this year. He said he doesn’t think Meta’s original goal of reaching 1 billion metaverse users is over the top – and more importantly, he thinks only 40% of those would be gamers, signaling that its appeal would be wider.