June 29, 2022

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Mark Zuckerberg wants to spend massively on the metaverse but investors are skeptical.

4 min read
Mark Zuckerberg wants to spend big

Mark Zuckerberg told the world in October of last year the world that he was fully committed to the metaverse and said that it was a venture that would only get more costly over time. As his company’s share value has been battered recently, he’s changing his mind.

Meta is expected to “slow the pace of some of our investments” due to “our current business growth levels,” Zuckerberg stated during the company’s quarterly earnings conference call Wednesday. The company’s earnings for the first quarter totaled $7.5 billion and which was down 21 percent from the prior year. Revenue grew seven percent, to $27.9 billion, which is the lowest increase since the company’s public listing 10 years ago. The range of expenses it aims to achieve for 2022 was cut to $3 billion.

Don’t be fooled: Zuckerberg is spending billions of dollars each year to develop tools and software for the metaverse, which he believes will one day become as important as the internet of mobile. Meta’s Reality Labs division of Meta which makes its Quest VR headset and future AR glasses employs about 17,000 employees. It lost more than $3 billion during the quarter. The issue is the company’s shareholders aren’t happy currently with that amount of expenditure, particularly when the return on investment is still several years from now.

Sometimes, the price of a stock can tell the tale. In the instance of Meta, its price has plunged more than 50 percent, completely eradicating the past 5 years of expansion in the time since it was rebranded as Facebook in October. This was the time Zuckerberg admitted that the company was already investing 10 billion dollars every year in Reality Labs and that he was expecting the expenditure to increase despite not seeing an increase until the end of the decade.

If his primary business of social media based on ads was growing as it did before, investors could have reacted positively in response to his Meta pivot. The timing could be worse: Facebook is growing slower than it ever has, due in large part to younger users leaving the site. TikTok is consuming the time that users spend on Facebook as well as Instagram. The Apple changes to ad tracking have already resulted in Meta over 10 billion dollars in revenue lost. Regulators have also stopped Zuckerberg from making massive, transformative acquisitions of social media, which could spur growth.

Facebook is growing however it’s growing slower than ever. After announcing its first-ever decline in daily usage in its fourth quarter in 2021 the blue app managed to increase its daily users by only 4.4% to 1.96 billion last quarter however, the daily number of users on Instagram, WhatsApp, and Facebook rose only slightly between 2.82 billion 2.87 billion. With expectations already below from Wall Street, Meta’s stock price soared over 15 percent after it posted higher-than-expected earnings per share during the first quarter.

“Meta’s ad business continues to face some very real challenges,” said Jasmine Enberg, a principal analyst at Insider Intelligence. “Facebook is, of course, not a stranger to challenges however, the iOS changes represent the first real danger to its ad revenue. In conjunction with the growth of TikTok and concerns about the safety of brands, as well as an evolution in the behavior of social media users There’s a perfect storm threatening Meta’s advertising revenues.”

It’s obvious that, in the near term, Zuckerberg believes that copying TikTok will help revive the growth of the app. He stated on Wednesday that Meta’s short-form video service, Reels, accounted for 20 percent of the time spent on Instagram and that the consumption of videos was already greater than half of the time that users spend on Facebook. Meta is still at the beginning of making money from Reels using ads, but it’s following the same strategy Zuckerberg employed to copy Snapchat’s Stories feature.

To launch Reality Labs, Zuckerberg said the next major hardware device is a top-of-the-line hybrid reality headset known as Cambria in the coming year. Zuckerberg stated that Cambria will be focused specifically on “work use cases and eventually replacing your laptop or work setup.” (Apple offers its mixed reality headset that is coming shortly, and in my opinion, Zuckerberg wants to get in front of it.)

Apart from the latest equipment, Meta is readying a web-based version of their Horizon social platform, which currently only runs only on Quest. Quest headset. It will place Horizon into a more direct battle with 3D games that are social and gaming apps such as Fortnite, Roblox, and Rec Room. Zuckerberg stated that Horizon will be more closely integrated with Quest in the upcoming software update, making it more solid as a lynchpin betting option. Meta can take a significant proportion of the virtual products that are sold on Horizon but is yet to implement an advertising system.

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