Last October, Mark Zuckerberg announced that he was going all-in on the metaverse, a venture that would only get more costly over time. After his company's stock price beat in recent months, he has toned down his criticism.
Meta will "lower the speed of some of our investments" due to "our current business growth levels," Zuckerberg said Wednesday during the company's first-quarter earnings call. Meta's first-quarter earnings were $7.5 billion, down 21% year over year. Revenue increased 7% to $27.9 billion, the weakest growth rate in the company's decade-long history. It has reduced its anticipated expenditure range for 2022 by $3 billion.
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Metaverse Investors Are Concerned
Zuckerberg continues to invest billions of dollars every year in developing gadgets and software for the metaverse, a notion he believes will someday eclipse the mobile internet in popularity. The issue is that Meta's investors are uneasy with that amount of investment at the moment, particularly since the reward is years away. Meta's Reality Labs subsidiary, which manufactures the Quest VR headset and future augmented reality glasses, employs around 17,000 people and lost almost $3 billion in the latest quarter alone.
Occasionally, a stock's price reveals the narrative. In the matter of Meta, its cost has fallen nearly 50% in the five years since it rebranded from Facebook last October, erasing the previous five years of growth. That was when Zuckerberg disclosed he was already spending $10 billion a year on Reality Labs and anticipated the investment to rise even though he would not see a return until the later part of this decade at the earliest.
If his primary business of ad-supported social networking continued to expand at its current rate, investors might have reacted favorably to the Meta move. However, the timing could not have been worse: Facebook is growing at a slower pace than ever before, largely due to the exodus of younger users. TikTok is consuming time formerly spent on Facebook and Instagram. And Apple's modifications to ad tracking have already cost Meta over $10 billion in sales. Meanwhile, regulations have barred Zuckerberg from making large, transformational purchases in social media that may re-ignite growth.
The Decline of Facebook?
Facebook continues to expand, albeit at a slower pace than ever before. Following its first-ever quarterly decline in daily users in the fourth quarter of 2021, the blue app increased daily users by barely 4% to 1.96 billion last quarter, while daily users across Instagram, WhatsApp, and Facebook increased marginally from 2.82 billion to 2.87 billion. With Wall Street's expectations already low, Meta's stock price soared more than 15% when the company posted better-than-expected profits per share in the first quarter.
"Meta's advertising business continues to experience significant headwinds," according to Jasmine Enberg, a lead analyst at Insider Intelligence. "Of course, Facebook is no new to setbacks, but the iOS modifications represent the company's first direct challenge to its advertising business. When combined with the emergence of TikTok, worries about brand safety, and a change in social media user behaviour, a perfect storm is brewing for Meta's ad income."
Featured image: Metaverse
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