Meta plans to lose more money while building the Metaverse

Mark Zuckerberg, CEO of Meta Platforms Inc., demonstrated Meta Quest Pro at the virtual Meta Connect event in New York, USA, on Tuesday, October 2nd. November 11, 2022.

Michael Nagel | Bloomberg | Getty Images

Yuan Chief Executive Mark Zuckerberg has reiterated his promise to spend billions of dollars developing virtual worlds as investors worry about the health of his company’s online advertising business.

On a conference call with analysts as part of Meta’s third-quarter earnings report, Zuckerberg and other Meta executives answered some questions from analysts who felt more and more concerned about the company’s rising costs and expenses. Increasingly frustrated, the company’s costs and expenses rose 19% year over year to $22.1 billion. quarter.

Meta shares fell 19% after the company reported fourth-quarter guidance that fell short of analysts’ expectations. The Facebook parent company’s third-quarter revenue fell 4% from a year earlier to $27.7 billion, while profits plunged 52% from a year earlier to $4.4 billion.

Meta’s Reality Labs unit, which develops virtual reality and related augmented reality technologies to power virtual worlds that have yet to be built, has lost $9.4 billion through 2022. The business unit’s revenue fell nearly 50% year over year — to $285 million a year, which Meta CFO Dave Wehner attributed to “lower Quest 2 sales.”

“We do expect Reality Labs’ 2023 operating loss to increase significantly year-over-year,” Meta said in a statement. “Beyond 2023, we hope to accelerate the pace of investment in Reality Labs so that we can achieve our goal of increasing the company’s overall operating income over the long term.”

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

“I just think there’s a difference between experimental stuff and not knowing how good it will end up being,” Zuckerberg responded. “But I think a lot of what we’ve done across the app family, We are all very confident that they will work and will be good,” he added, citing the company’s work on improving its TikTok-like counterpart. Manage short video services, its content recommendation algorithms, business information capabilities and online advertising technologies.

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

“Obviously, the metaverse is a series of long-term efforts that we’re working on,” Zuckerberg said, arguing that “it’s going to work eventually too.”

Sounding taken aback, Zuckerberg said: “There’s a lot going on in business and the world right now, so it’s hard to have a simple ‘we’re going to do this, this is going to fix everything'”

Zuckerberg explained that Meta faces a number of challenges, such as a sluggish economy, the lingering impact of Apple’s 2021 iOS privacy update that makes it harder for Meta to target ads to users, and competition from players like TikTok.

A long-term investment in Metaverse “will provide greater returns over time,” he said.

“I think we’re going to address these issues over different time periods, and I appreciate everyone’s patience, and I think those who are patient and invest with us will eventually pay off,” Zuckerberg said.

Zuckerberg acknowledged that part of the reason his company developed the Metaverse was to ensure it had a platform in the future that would not be adversely affected by decisions made by competitors, such as appleBut the bigger reason Zuckerberg developed the virtual universe is so tech companies can be more innovative in building the software and hardware that underpins computing platforms, he said.

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

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