Facebook parent Meta Platforms is making a huge investment in virtual reality, but its actual reality is looking like a real disaster.
Meta shares tumbled 24% on Thursday to its lowest level in nearly four years following an earnings report that one Wall Street analyst described as a "train wreck." It's a far cry from the company's position nearly a year ago, when CEO Mark Zuckerberg on October 28, 2021, announced with great fanfare that Facebook was changing its name to Meta Platforms to emphasize its focus on the "metaverse."
On Thursday, Meta's market value sank to $268 billion, down from more than $1 trillion in September of 2021. The shares regained some ground on Friday morning, rising $1.72, or about 1.8%, to $99.66 per share.
The company's travails raise questions about its all-in bet on the metaverse, as well as whether the social media company could suffer the fate of other major businesses whose gambles on the future failed to pay off. In the near-term, Meta's core Facebook business is facing challenges as the economy slows and advertisers trim spending.
"Meta's results last night was an absolute train wreck that speaks to pervasive digital advertising doldrums ahead for Zuckerberg & Co. as they make the risky and head scratching bet on the metaverse," Wedbush analyst Dan Ives said in a report.
The hit to Meta has also whittled down Zuckerberg's personal fortune, since most of his wealth stems from his 13% stake in the social media company. He is worth $37.7 billion as of October 27, according to Bloomberg Billionaires Index, having lost almost $88 billion in wealth during the past 12 months.
Here are three key issues slamming Meta shares and deepening questions about its longer-term prospects.
$9.4 billion in metaverse losses
On a Wednesday conference call to discuss Meta's latest earnings, Zuckerberg told investors he is "pretty confident this is going in a good direction."
Investors aren't convinced. The company is making what amounts to a wildly expensive bet on its ability to transform into a virtual reality behemoth and whether that technology can power the next phase in Meta's growth.
Although such strategic pivots can take years for big companies to execute — as it did for IBM and Microsoft as they morphed from selling hardware to software — the early returns for Meta have been grim. For the first nine months of the year, Meta lost $9.4 billion on its metaverse unit, Reality Labs. It expects the unit to have "significantly" wider operating losses in 2023, the company said on Wednesday.
