Meta plans to lose even more money building the metaverse

Mark Zuckerberg, Managing Director of Meta Platforms Inc., demonstrates Meta Quest Pro during the Meta Connect virtual event in New York, United States, Tuesday, October 11, 2022.

Michael Nagle | Bloomberg | Getty Images

Meta CEO Mark Zuckerberg has reiterated his commitment to spending billions of dollars to grow the metaverse as investors worry about the health of his company’s online advertising business.

During a call with analysts as part of Meta’s third quarter earnings report, Zuckerberg and other Meta executives answered a number of questions from analysts who seemed increasingly frustrated with the rising company costs and expenses, which jumped 19% year-over-year to $22.1 billion during the quarter.

Meta shares fell 19% after the company announced weak fourth-quarter guidance below analysts’ estimates. Facebook’s parent company’s revenue fell 4% year-on-year to $27.7 billion in the third quarter, while its profits fell 52% year-on-year to $4.4 billion .

Meta’s Reality Labs unit, which is responsible for developing virtual reality and related augmented reality technology that underpins the yet-to-be-built Metaverse, has lost $9.4 billion so far in 2022. Revenue for this business unit fell nearly 50% year over year. -year to $285 million, which Meta CFO Dave Wehner attributed to “declining sales of Quest 2”.

“We expect Reality Labs operating losses in 2023 to increase significantly year over year,” Meta said in a statement. “Beyond 2023, we plan to accelerate investments in Reality Labs so that we can achieve our goal of growing the company’s overall operating income over the long term.”

Jefferies analyst Brent Thrill said on the earnings call that investors likely feel there are “too many experimental bets compared to proven core bets” and asked why Meta think experimental bets like the Metaverse will pay off.

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“I just think there’s a difference between something that’s experimental and not knowing how good it’s going to end up being,” Zuckerberg said in response. “But I think a lot of the things we’re working on in the app family, we’re absolutely confident that they’re going to work and be good,” he added, citing the company’s work improving its TikTok-like short video service Reels, content recommendation algorithms, professional messaging features and online advertising technology.

Although Zuckerberg said he “can’t tell you right now how big they will be,” each improvement “kind of goes in the right direction.”

Zuckerberg said that “obviously the metaverse is a longer-term set of efforts that we’re working on” and that he thinks “that will eventually work out too.”

Seeming flabbergasted, Zuckerberg said ‘there’s a lot going on right now in the business and in the world, and so it’s hard to have a simple ‘we’re going to do this thing and it’s going to solve all the problems.’ “

Meta faces a number of challenges such as the poor economy, the lingering effects of Apple’s iOS 2021 privacy update which made it harder for Meta to target ads to users, and competition from gamers like TikTok, Zuckerberg explained.

Long-term investments in the metaverse “are going to provide better returns over time,” he said.

“I think we’re going to work out each of these things over different periods of time, and I appreciate the patience and I think those who are patient and invest with us will eventually be rewarded,” Zuckerberg said.

Zuckerberg acknowledged that part of the reason his company is developing the Metaverse is to ensure that it has a platform in the future that will not be affected by the decisions of its rivals, such as Apple. But the main reason Zuckerberg is developing the metaverse is that tech companies can be more innovative when they build both the software and the hardware that underpin a computing platform, he said.

“A lot of it is just that you can create new and innovative things by controlling more of the stack yourself,” Zuckerberg said.

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