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Meta’s value has fallen by $700 billion. Wall Street calls it a “train wreck”.

Facebook’s parent meta platform is making huge investments in virtual reality, but its real reality is looking like a real disaster.

Meta shares tumbled 24% on Thursday to their lowest level in nearly four years after an earnings report described by a Wall Street analyst as a “train wreck.” That’s a far cry from the company’s position nearly a year ago, when CEO Mark Zuckerberg announced on October 28, 2021, with great fanfare, that Facebook changing its name Meta Platforms to focus their attention on the “Metaverse”.

Last fall, Facebook was still riding high: Its market cap reached a peak of more than $1 trillion in September 2021. Revenue and profits were soaring as advertisers flocked to Facebook and Instagram to reach their billions of users.

To be sure, practically the entire tech industry has taken a beating this year, but Meta’s stock decline has outpaced the overall sector, with its shares down 67% from a year ago. , while compared to the tech-heavy Nasdaq’s 31% slide. Duration. Meta’s decline translates into a loss of approximately $700 billion in market value.

On Thursday, Meta’s market cap fell to $268 billion, up from $1 trillion in September 2021.

The company’s travails raise questions about all of its bets on the metaverse, as well as whether the social media company may face the fate of other major businesses whose gamble on its future failed to pay off. In the short term, Meta’s core Facebook business is facing challenges as the economy slows and advertisers cut spending.

Wedbush analyst Dan Ives said in a report, “Last night’s Meta results were an absolute train wreck that speaks volumes about further widespread digital advertising for Zuckerberg & Co. as risky and head-scratching on the Metaverse.”

Here are three key issues that are criticizing Meta stocks and deep questions about its long-term prospects.

Metaverse loss of $9.4 billion

At Wednesday’s conference call to discuss Meta’s latest earnings, Zuckerberg told investors he was “very confident it’s going in a good direction.”

Investors are not convinced. The company is betting wildly expensive on its ability to turn into a virtual reality behemoth and whether that technology can power the next stage in the meta’s evolution.

Although such a strategic pivot could take years for large companies to execute — as it did for IBM and Microsoft as they morphed from hardware to software to sell — early returns for Meta have been dire. For the first nine months of the year, Meta lost $9.4 billion on its Metaverse unit, Reality Labs. The company expects the unit to have a “significantly” wide operating loss in 2023, the company said on Wednesday.

Investors are skeptical, because at least for now, consumers aren’t really flocking to the fledgling metaverse. Unlike the long time-lines for building businesses typically in Silicon Valley, Wall Street values ​​companies based on near-term returns rather than risky projections of what the future holds.

The Wall Street Journal reported earlier this month that Horizon Worlds, Meta’s new virtual space, lowered its target for monthly active users from 500,000 to 280,000, but the space is attracting less than 200,000.

,[I]Investors should stay on edge because progress in the metaverse will take years to truly be monetized,” Angelo Zino, senior equity analyst at CFRA Research, told investors in a research note.

slow facebook growth

By comparison, Facebook had a massive base of 1.98 billion active daily users on average for September — a 3% increase from a year ago.

That may sound respectable, but it’s a far cry from the massive growth Facebook experienced in earlier years. And the slow growth comes after Facebook said in February lost users For the first time in its history.

The big money maker of the social media juggernaut, Meta, is facing challenges from upstarts like TikTok, which are grabbing young consumers.

Advertising Challenges

Meta’s lifeblood is ad revenue booked by Facebook, Instagram and WhatsApp, with businesses eager to reach their billions of daily users. But its advertising revenue fell in the most recent quarter, with sales down 3.7% and investors worried.


Meta announces its first hiring freeze, indicating a technical slowdown

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On the advertising front, Meta is facing a double whammy. The economic slowdown means advertisers are cutting spending, the company said on Wednesday, pointing to an “uncertain and volatile macroeconomic landscape” for ads. The company is also grappling with the impact of Apple’s privacy changes to the apps it runs on its devices. That change means consumers can tell apps not to track them, and Facebook has said it will cost $10 billion this year.

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