Meta’s 50% profit loss has investors on the run

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Meta confirmed all the criticism leveled at it with Wednesday’s earnings report. The live stream was painful to watch. It’s a tough time for ad-supported businesses. Google and Instantaneous had their time in the barrel earlier this month, but in many ways the news from Meta is much worse. The company formerly known as Facebook is under increasing competitive and regulatory pressures, and a historic commitment to what many see as a Metaverse money pit. Meta stock started the day at $132 per share and rose to $104 after the earnings report. The stock is now close to its 2015 price.

Are things really that bad, or is Meta, a third of its price a year ago, a screaming buy? The company has a fantastic but aging family of social media brands across Facebook, Instagram and WhatsApp. Each reaches more than two billion people. Combined, they bring in $120 billion a year, with a net profit of $4.4 billion in that quarter alone. In particular, it is 50% less than last year. The changes to Apple’s ad tracking have really taken a bite out of it.

This is an extremely complicated international enterprise with incredible influence and power. Naturally, investors want to know more about it and how its enormous power can overcome serious headwinds. Instead, investors have heard a lot about how those dwindling profits will be spent on something they don’t understand (VR) and something that doesn’t exist (the metaverse).

Meta Reality Labs saw a 49% drop in revenue due to slower sales of its flagship product, the Quest 2. Not a trusted builder. Overall, the unit posted an operating loss of $3.7 billion for the quarter. At this point, Meta is taking all the dough it’s still earning ($4.4 billion this quarter) and spending on the Metaverse ($3.7 billion). Because investors don’t have voting rights at Meta, and the company’s board of directors is chosen by the founder, the only way investors can vote is with their feet.

Zuckerberg’s focus on the metaverse, and apparent neglect of a declining social media empire, is another challenge the company now faces. It must also create difficult choices for Meta employees. If they joined the company after 2017, they now hold underwater stock options. They too can vote with their feet. Even in a down economy, great engineers are still in demand.

Believe it or not, despite these seemingly catastrophic results, I come more to praise Mark Zuckerberg than to bury him. It is taking a historical commercial risk by trying to make these new platforms exist. The whole world is obsessed with the Metaverse now. Because of him. What a story. You couldn’t make this up. The best part is that no one knows what’s going to happen. Investors hate that.

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