Following a disappointing set of financial reports from the digital behemoth, shares of Meta, which owns Facebook and Instagram, have dropped by over 20%.
It comes at a time when investor misgivings about Mark Zuckerberg’s vision for the future are growing and revenues and earnings are falling.
In the three months ending in September, Meta’s revenue decreased by 4% to $27.7 billion, while profits decreased by half.
If the decline in share price continues until Thursday’s close, the market worth of the company will be reduced by $78 billion.
What is the problem?
Mark Zuckerberg declared virtual reality the next frontier that would drive Facebook’s expansion a year ago. However, there has been relatively little of it thus far.
The firm, which also owns WhatsApp, is struggling as companies decrease advertising budgets in response to economic uncertainty, changes to Apple’s privacy settings harm its targeted advertisements, and competition from rivals such as TikTok intensifies.
Mr. Zuckerberg, who established Facebook in college nearly two decades ago, recognized that the company faced “imminent problems.”
He stated that the corporation was focused on becoming more efficient and alluded to layoffs by stating that the company may be “smaller” next year.
On a conference call filled with skeptical analysts, he also insisted that the firm was headed in the right direction, as it invests in ways to keep users on its applications and asserts a claim in the growing world of virtual reality, sometimes known as the metaverse.
There are a lot of things happening in business and the world right now,” he remarked. We will address each of these concerns… I believe individuals who exercise patience and invest with us will ultimately be rewarded.
When the company announced in February that it had lost daily users for the first time, investor confidence plummeted. Then, in July, the company revealed its first quarterly decrease in sales, as advertising budgets were trimmed by companies fearful about the economic future.
Before the company’s update, the value of Meta’s shares had dropped 60% since the beginning of the year, erasing hundreds of billions of dollars from the company’s worth.
After executives warned that a rebound would require an improvement in the broader economy, they fell further on Thursday.
Analyst Debra Aho Williamson of Insider Intelligence stated that the company’s present business condition was “precarious.”
She stated, “Mark Zuckerberg’s decision to focus his company on the future promise of the metaverse diverted his attention from the unpleasant facts of today: Meta is under tremendous pressure.”
Meta continues to earn substantial revenues – about $4.4 billion in the three months ending in September – and has resisted a reduction in customers.
In the three months ending in September, 2.93 billion individuals were active on one of the company’s platforms daily, up from 2.88 billion in the preceding quarter.
Although Facebook’s core platform is losing users in the United States and Europe, it continues to expand in other regions.
Despite the company’s strengths, many investors feel it has lost its path.
“Meta has strayed into the realm of excess, with too many individuals, too many ideas, and too little urgency. This lack of focus and fitness is masked when growth is rapid but proves fatal when growth slows and technology evolves “This week, investor and Altimeter Capital CEO Brad Gerstner wrote an open letter to the company, urging it to reduce its workforce and investments in artificial intelligence and virtual reality, also known as the metaverse.
In recent years, Facebook’s expenses have increased as the company has faced issues regarding how it handles the spread of misinformation on its platform and protects user privacy.
The company stated it was “making significant adjustments across the board to operate more efficiently” and aimed to maintain the same number of employees during the following year.
After payrolls increased by 28% in the last year, from approximately 17,000 at the end of 2016 to more than 87,000, this would be a significant change.
However, it warned that losses in its Reality Labs division, which focuses on virtual reality and has experienced a major sales decline, were expected to increase.
Mr. Zuckerberg stated that despite the skeptics, he is committed to the idea.
“I understand that many people may disagree with this investment, but from what I can tell, I believe this will be a very significant development,” he remarked.
