Home » Meta Just Dropped a Metaverse Bomb on Investors. Here’s What You Need to Know.

Meta Just Dropped a Metaverse Bomb on Investors. Here’s What You Need to Know.

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meta platform(meta -5.59%) The metaverse is going in reverse. Facebook’s parent company issued a stinking earnings report on Wednesday, disappointing on nearly every major metric and offering disappointing guidance.

Meta stocks plummeted in Q3 results, down 20% in after-hours trading, and it’s easy to see why. Overall, the results show that the once-dominant advertising business is in decline, while pursuing what seems to be more and more junk in the metaverse. Earnings at Reality Labs, the company’s metaverse-focused unit, plummeted in the fourth quarter, and the company says losses for the division will widen significantly next year.

meta reality check

Reality Labs revenue fell 51% to $285 million, Metaverse business In at least eight quarters. Reality Labs also reported an operating loss of $3.7 billion in the quarter. This is the segment’s largest quarterly loss to date. Through his first three quarters of the year, the division lost his $9.4 billion.

At this stage, Reality Labs’ revenue consists entirely of Quest headset sales, with Quest 2 sales down from the quarter a year ago, according to management.

The company has just started shipping the Quest Pro, a high-end mixed reality headset priced at $1,500, and plans to roll out the Quest 3 next year, which will retail between $300 and $500. is.

Giving the meta any room for doubt, you might think that Reality Lab’s revenues were down as potential buyers waited for the new Quest model to come out, but the company’s early predictions for 2023 are also exciting. It wasn’t. Management expects Reality Labs’ operating loss to increase significantly in 2023 and has given no indication of expecting a significant increase in revenue.

With an annual run rate of $15 billion since the third quarter, it’s hard to underestimate how huge the Metaverse division’s losses are already. Only a few dozen US companies make that much profit in a typical year.

The fact that Meta is willing to spend so much on unproven concepts could indicate the company’s confidence in the upcoming Metaverse. Leading computing platform, as CEO Mark Zuckerberg previously explained.However, that confidence can easily be misplaced, so Reality Labs huge stupidity It will never become a viable business.

How to lose $500 billion in 10 months

Few, if any, companies have ever invested so much in a development-stage business, and the Reality Labs bonfire caused Meta’s stock to drop more than 60% this year, removing more than $500 billion from its market cap. One of the reasons I lost .

Another reason is the challenges in the advertising business, but Meta deserves success in that segment because of the two biggest headwinds. appleApple’s Ad Tracking Transparency Initiative and the macroeconomic slowdown are out of control and have exceeded the worst part of Apple’s ad targeting limits.

The Metaverse bet, on the other hand, is wholly owned by Meta, and the prospect of an operating loss of around $20 billion for Reality Labs next year is certainly terrifying for many investors.

Management said it will manage its investment in Reality Labs to grow its overall operating profit from 2023 onwards, but that growth will come from a much smaller base than the company did last year.

Advertising will continue to be the company’s source of revenue for the foreseeable future, but the future of the stock will depend on what the company accomplishes with the Metaverse. If Reality Labs doesn’t live up to his Zuckerberg ambitions, Meta’s best days are likely behind it.

Randy Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Meta Platform CEO Mark Zuckerberg, is a member of the Motley Fool’s board of directors. Jeremy Bowman The Motley Fool holds positions with and recommends Apple and Meta Platforms, Inc. The Motley Fool recommends Apple’s March 2023 $120 long call and Apple’s March 2023 $130 short call options. The Motley Fool has Disclosure policy.

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