Home » Meta stock craters over bleak forecast and expensive metaverse bets

Meta stock craters over bleak forecast and expensive metaverse bets

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Katie Paul and Chavie Mehta

Reuters – Facebook parent company Meta Platforms said on Wednesday that it expected a weak holiday season and higher costs next year, as investors were skeptical of the company’s expensive metaverse bet. Shares fell about 20%.

The forecast has slashed Meta’s stock market value by about $67 billion in long-term trading, adding to the more than $5 trillion in value already lost this year.

If Meta’s after-hours stock crash coincides with Thursday’s trading session, it would be the biggest one-day loss since the company last issued its dismal forecast on February 2nd.

Meta has been a disappointing prospect as it battles a slowing global economy, competition from TikTok, Apple’s privacy changes, concerns over massive spending on the Metaverse, and ever-present regulatory threats.

Management has announced plans to consolidate offices, and Meta said it will keep its headcount until the end of 2023.

Earnings declined 4% in the third quarter ended September 30. That deepened the revenue decline that began last quarter, with the company posting its first-ever revenue decline of 0.9%, but not as much as Wall Street’s 5.6% decline. Expected, according to IBES data from Refinitiv.

Graphics: Meta revenue fell for second consecutive quarter https://graphics.reuters.com/METAPLATFORMS-RESULTS/dwvkrbbwbpm/chart.png

Even more troubling is Refinitiv’s data that shows the company’s fourth-quarter sales will be in the $30 billion to $32.5 billion range, which is largely below analyst estimates of $32.2 billion. I’m here.

Meta also forecasts full-year 2023 total costs of $96 billion to $101 billion, well above its revised estimate of total costs for 2022 of $85 billion to $87 billion.

This includes an estimated $2.9 billion in both 2022 and 2023 costs from office downsizing.

It also predicted operating losses related to its Reality Labs division, which is responsible for investing in the Metaverse, to widen in 2023, after which it pledged to “pace” its investments.

Total expenses in the third quarter beat estimates at $22.1 billion, compared with $18.6 billion a year ago.

“Experimental Bet”

Meta is making several overhauls to its apps and advertising products to keep its core business profitable while investing $10 billion a year in betting on Metaverse hardware and software.

CEO Mark Zuckerberg said he expects the investment in the Metaverse to take about 10 years to come to fruition. Meanwhile, he had to freeze hiring, close projects, and reorganize his team to cut costs.

Analysts on a conference call with investors said Zuckerberg’s investors were concerned the company had made “too many experimental bets” and why his bets paid off. I asked the chief executive if he believed it.

Meta executives defended the spending, saying most of the company’s spending still goes to its core business, including investments in more expensive AI-related servers, infrastructure and data centers.

Zuckerberg added that he expects the Metaverse effort to pay off over time.

“Thank you for your patience,” he said. “And I think those who are patient and invest in us will be rewarded in the end.”

Zuckerberg said Meta’s TikTok-like short-video product, Reels, has more than 140 billion daily views on Facebook and Instagram, up 50 percent from six months ago, and earning $3 billion annually. I’m here.

He believes Reels beats rival TikTok, adding that Reels is reshared more than a billion times a day.

Meta also posted user growth largely in line with expectations, including a year-over-year increase in monthly active users on its flagship app Facebook.

“The meta concern is that cost headwinds remain a real challenge, and this pain could continue into 2023 as a stronger dollar impacts overseas earnings,” said Ben Ballinger, equity research analyst at Quilter Cheviot. It’s highly sensitive,” he said.

“A small increase in users and impressions is not going to save you, given that revenue has declined when costs have increased significantly.”

Third-quarter net income fell to $4.4 billion, or $1.64 per share, from $9.19 billion, or $3.22 per share, in the same period last year, the worst since 2019 and the fourth straight quarter. profit decreased.

Analysts had expected earnings of $1.86 per share.

(Reporting by Katie Paul, Palo Alto, CA and Chavi Mehta, Bangalore; Additional reporting by Sheila Dang, Dallas; Editing by Anil D’Silva, Peter Henderson, Lisa Shumaker)

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