Wall Street is apprehensive because Meta is putting a lot of virtual eggs, stocks — and billions of dollars — into the metaverse basket.
The corporation formerly known as Facebook revealed a rare profit decline on Thursday. Thus, owing to a significant increase in spending, weak ad revenue growth, competition from TikTok, and fewer daily U.S. users on its flagship platform.
Simultaneously, it put more than $10 billion into CEO Mark Zuckerberg’s grandiose goal to turn Meta Platforms Inc. into virtual reality; or to put it another way, a “metaverse-based” — corporation.
In afternoon trading on Thursday, Meta’s stocks plunged more than 26% to $237.76. Thereby, slashing the company’s whole value, or market capitalization, by more than $230 billion. That’s the biggest one-day drop in a company’s history.
“Meta is sacrificing its core business model for its fascination with the metaverse,” said Rachel Jones, an analyst with the research firm GlobalData. “Betting big on the metaverse isn’t a bad thing — the technology is set to be huge and provide a multitude of opportunities — but it will take at least another decade to really get going.”
Tech businesses are habitual to placing large bets on futuristic-sounding ideas. They occasionally become reality and also come with a large payoff. But Wall Street is wary of risk. There’s also the unpleasant issue that Facebook’s existing platform continues to struggle with destructive real-world impacts.
There’s “continued concern that Facebook’s past challenges will follow Meta into the metaverse,” said Mike Proulx, research director at Forrester Research. “The company has work to do to convince consumers that Meta’s expression of the metaverse is a good thing,”
Facebook changed its name last fall. Since then, Meta has been transferring resources and recruiting engineers who can help Zuckerberg accomplish his goal, also including competitors like Apple and Google.
“Fortune favors the bold”
Consider the metaverse to be the internet brought to life, or at the very least portrayed in three dimensions. It’s a “virtual environment,” according to Zuckerberg, in which you can immerse yourself rather than merely stare at a screen. Virtual reality headsets, augmented reality glasses, smartphone apps, other gadgets might theoretically be useful to meet, work, play in metaverse.
It may sound like science fiction. But computers that fit in your pocket, driverless cars, and microwaves that talk were all science fiction not long ago. Technology advances whether we like it or not. “Fortune favors the bold,” is a classic Facebook motivational banner in the company’s headquarters. A massive pushback to Facebook’s issues ranges from disinformation and privacy mistakes to teen mental health and hate speech. Zuckerberg still maintains that risky investments to steer the firm in new directions have typically paid off.
In a conference call on Wednesday, Zuckerberg said the company’s investments this year will focus on Reels. It is an Instagram-based TikTok-like short-form video service. Also, the focus will be on messaging, advertisements, commerce, privacy, artificial intelligence “and, of course, the metaverse.”
“Making meaningful progress across all seven of these areas is going to improve the services we offer today and will help power a social, intuitive, and entertaining metaverse,” he said. But he acknowledged that “this fully realized vision is still a ways off, and although the direction is clear, our path ahead is not perfectly defined.”
Mark Zuckerberg’s focus
While Wall Street’s metaverse excitement appears to lag well behind Zuckerberg’s, Meta’s competitors are accelerating their metaverse initiatives. Apple, Google, and Microsoft are among them. Microsoft recently purchased the video game giant Activision Blizzard in the hopes of boosting its metaverse ambitions.
But it isn’t just the major corporations that had its after-effects. From November 2021 to January of this year, 86 applications added “metaverse” to their title or description, according to app analytics firm SensorTower. To date, the term “metaverse” appears in the title or description of 552 mobile apps.
Mark Kelley, a Stifel analyst, tried to reassure investors by pointing out that Zuckerberg has not one, but seven investment goals for the company this year. He doesn’t believe Meta’s initial aim of 1 billion metaverse users is unrealistic. More crucially, he believes only 40% of them will be gamers, indicating the platform’s broader appeal.
Matthew Ball is a metaverse enthusiast and venture capitalist. He created an index fund of metaverse-related companies months before Facebook’s rename. Also, he is unfazed by Meta’s stock drop. Ball’s index includes 45 equities, one of which is Meta.
“Mark’s focus on the next-generation internet is actually justified by the fact they can see in their core business that growth is slowing, that users are shifting elsewhere, and in particular, young users are shifting to these virtual and immersive worlds where they’re a small participant and where their investments are focused,” he said.