Meta stock plummets 20 per cent as Zuckerberg calls for patience with pricey metaverse bets
- Facebook parent Meta Platforms forecast a weak holiday quarter, knocking about US$67 billion off its stock market value
- Investors are increasingly wary about Meta’s expensive metaverse spending, but CEO Mark Zuckerberg said ‘those who are patient … will end up being rewarded’
The forecast knocked about US$67 billion off Meta’s stock market value in extended trade, adding to the more than half a trillion dollars in value already lost this year.
If Meta’s after-hours stock rout is matched in Thursday’s trading session, it will have been its deepest one-day loss since February 2, when the company last issued a dismal forecast.
The disappointing outlook comes as Meta is contending with slowing global economic growth, competition from TikTok, privacy changes from Apple, concerns about massive spending on the metaverse and the ever-present threat of regulation.
Executives announced plans to consolidate offices and said Meta would keep headcount flat through the end of 2023.
Revenue fell 4 per cent in the third quarter ended September 30. That deepened a revenue decline begun the previous quarter, when the company posted a first-ever revenue drop of 0.9 per cent, although it was less steep than the 5.6 per cent decline Wall Street had expected, according to IBES data from Refinitiv.
More troubling was the company’s estimate that fourth-quarter revenue would be in the range of US$30 billion to US$32.5 billion, mostly under analysts’ estimates of US$32.2 billion, according to the Refinitiv data.
Meta also forecast that its full-year 2023 total expenses would be US$96 billion to US$101 billion, significantly higher than a revised estimate for 2022 total expenses of US$85 billion to US$87 billion.
That includes an estimated US$2.9 billion in charges over the course of both 2022 and 2023 from the office downsizing.
It also forecast that operating losses associated with the Reality Labs unit responsible for its metaverse investments would grow in 2023 and pledged to “pace” investments after that.
Total costs for the third quarter came in above estimates at US$22.1 billion, compared with US$18.6 billion the year prior.
Meta is carrying out several overhauls of its apps and ads products to keep its core business pumping out profits, while also investing US$10 billion a year in a bet on metaverse hardware and software.
Chief executive Mark Zuckerberg has said he expects the metaverse investments to take about a decade to bear fruit. In the meantime, he has had to freeze hiring, shutter projects and reorganise teams to trim costs.
An analyst on the investor call told Zuckerberg investors were worried that the company had taken on “just too many experimental bets” and asked the chief executive why he believed his gambles would pay off.
Meta executives defended the spending, saying most of the company’s expenses were still going toward the core business, including investments in more expensive AI-related servers, infrastructure and data centres.
Zuckerberg added that he expected the metaverse work to provide returns over time.
“I appreciate the patience,” he said. “And I think that those who are patient and invest with us will end up being rewarded.”
Zuckerberg said plays of Meta’s TikTok-like short-video product Reels now number more than 140 billion across Facebook and Instagram each day, up 50 per cent from six months ago, and its revenue run rates are now US$3 billion annually.
He believes Reels is gaining against rival TikTok, he added, with Reels being reshared more than 1 billion times a day.
Meta also posted user growth figures roughly in line with expectations, including a year-over-year increase of monthly active users on flagship app Facebook.
“The worry for Meta is that this pain is likely to continue into 2023 as cost headwinds remain a real challenge and the strong dollar impacts on overseas earnings,” said Ben Barringer, equity research analyst at Quilter Cheviot.
“Given revenues were down at a time when costs have grown significantly, modest user growth and impressions simply isn’t going to bail you out.”
Net income in the third quarter fell to US$4.40 billion, or US$1.64 per share, from US$9.19 billion, or US$3.22 per share, a year earlier, its worst showing since 2019 and the fourth straight quarter of profit decline.
Analysts had expected a profit of US$1.86 per share.