Home » Meta’s Metaverse Has Investors’ Heads Spinning Ahead Of Earnings, Not In A Good Way

Meta’s Metaverse Has Investors’ Heads Spinning Ahead Of Earnings, Not In A Good Way

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From Earth to Zuckerberg: Canceled.

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The recent announcement of enterprise-oriented partnerships to lure large corporations into the Metaverse vision is positive for angry shareholders, but what they really want is for the company to pay attention to its knitting and It’s about getting away from the strange new virtual world.

“There is a healthy degree of skepticism among Wall Street about the size of the investment,” said Brent Till, Managing Director of Jefferies, of Meta’s pricing focus on the Metaverse. “Investors are absolutely 100% against this,” he added.

It’s not the metaverse itself that’s alarming investors, Thills said. Rather, it is the scale of the investment, seemingly ‘too aggressive from the top’, compared to ‘an impact that is largely trying to fulfill its core’. Advertising, so to speak.

A year after Meta announced its name change from Facebook, reflecting a shift in investment to the as yet undefined Metaverse, the company has rolled out a suite of products and applications that have grown in popularity with users on the platform. rice field. Facebook and Instagram integration into creating your own Horizon World metaverse. However, according to Meta’s second quarter earnings, Meta posted modest earnings of $2 billion in his subsequent three quarters despite all of the investments, and cumulative operating losses since the third quarter of 2021. reached his $9.1 billion. presentation.

It’s been a bad year for the stock market as a whole, but it’s only getting worse for Meta.this is 10.75 The price/earnings ratio (PE) is near the lowest since the company went public in May 2012.

Investors were only willing to pay 10.5 times the company’s free cash flow (FCF) at the end of September. Telecom Services Select Sector SPDR ETF (XLC)The fund’s largest component, 17.7% Meta, traded at a premium of 24.6x to 18.8x FCF at the end of last year. Free cash flow is a measure of cash available for shareholder benefits, such as dividends and share buybacks, or for investments in the business.

“Perhaps there is a view that the more we invest in the metaverse, the more we realize that the decline of our core business is more imminent than we thought. senior analyst.

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“Macro storms hitting advertisers” are one of the main reasons for the decline of core businesses, Thill says. Neither Meta’s Instagram and ByteDance’s battle for ad revenue on his TikTok nor younger viewers are helping.

There’s also the question of what the Horizon World of the Metaverse really is. At the company’s annual Connect conference, CEO Mark Zuckerberg emphasized that the future of the project is “open” and “interoperable.” However, the technology used by Meta is conventional and lacks the decentralization factor, such as blockchain or other distributed ledger-based, that distinguishes it from the so-called walled garden approach to social media. Although it has been approached in various ways, the Metaverse is often seen as an immersive internet with components of virtual and augmented reality.

“Depending on the standards adopted, you can still have an open metaverse,” says Kathy Huckle. forbes Contributor, founder and leader of Journey’s Metaverse Studio, a web design consultancy. “But without blockchain, we cannot have a decentralized metaverse with true interoperability.”

In fact, the company’s latest attempt at goose Prospects for the Metaverse It was a series of partnerships with traditional tech giants like Microsoft.
A slightly less mainstream zoom. These deals, which aim to increase adoption of the concept by large companies, are reassuring to investors, even if at odds with their vision of a decentralized future, Smurlick says.

“It’s the single biggest economic driver they’ve announced,” adds Laura Martin, senior entertainment and internet analyst at Needham, at Connect.

probably long term. Today, however, the benefits of metaverse adaptation, which is primarily aimed at consumers, are bleak. Blockchain-based worlds such as Decentraland and Sandbox are popular with metaverse enthusiasts, with negative ROI every year (21.92% When 6.71%, respectively) according to data from Messari. Prior to Meta’s Microsoft Horizon Worlds, it didn’t noticeably improve in terms of user activity. According to internal documents obtained by the company, wall street journal, currently has around 200,000 monthly active users, down from the 300,000 the company claimed in February.meta is not responding forbes Ask for comments to confirm the current number of users.

Thill and Shmulik agree that a return to their core business of advertising is good for Meta.

“Perhaps there is a view that the more we invest in the metaverse, the more we realize that the decline of our core business is more imminent than we thought,” says Shmulik.

Meta’s advertising hasn’t been terrible over the past two quarters, with the company grossing about $27 billion in the first quarter and more than $28 billion in the second quarter, in line with corresponding 2021 levels. Still, advertising revenue wasn’t enough to combat rising costs, with net income of $14.2 billion in the first half, down from $19.9 billion in 2021.

To allay investor concerns, Shmulik said he expects the third quarter to reflect increased interest in advertising revenue and user engagement. However, FactSet forecasts ad revenue to be around $27.2 billion, down nearly 4% year over year.

“I don’t think the success or failure of the Metaverse really means anything to the current stock price trajectory and how investors view the stock,” he added. will widen its third-quarter operating loss to $3.7 billion, the largest quarterly loss to date when the company reports results after the close of trading on Wednesday.

Overall, Meta is expected to earn $1.90 per share on an adjusted basis as used by analysts, down from $3.22 a year earlier, and revenue will drop to $27.4 billion. $29 billionNet debt is forecast to surge to $54.9 billion from $47 billion in the second quarter. bond market It’s the first time we hit $10 billion in sales in August.

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