Daily Management Review

Investors Penalize Zuckerberg After His Expensive Metaverse Pitch Falls Flat


Investors Penalize Zuckerberg After His Expensive Metaverse Pitch Falls Flat
Wall Street is losing patience with Meta CEO Mark Zuckerberg's massive and experimental bets on his metaverse project, which contributed to a fifth increase in the company's overall costs in the third quarter.
After hours, investors rushed to dump Meta Platforms Inc's stock, driving it down 20% and wiping $67 billion off its market value after the company reported its fourth consecutive quarterly profit decline.
The Facebook-parent company said its overall expenses could rise by up to 16% next year, and it expects operating losses at Reality Labs, the unit in charge of bringing the metaverse to life, to "grow significantly" next year.
One Meta shareholder recently expressed concern about the company's investments, calling them "super-sized and terrifying." Analysts described them as "confusing and perplexing," and Meta's inability to cut costs as "extremely disturbing."
During a post-earnings conference call, Jefferies analyst Brent Thill posed the following question to executives: "I think the best way to summarize how investors feel right now is that there are simply too many experimental bets versus proven bets on the core... Everyone would like to know why you believe this will pay off."
Reality Labs' losses increased to $3.67 billion in the July-September quarter, up from $2.63 billion the previous year. Revenue has been nearly halved.
"It would be a mistake for us to not focus on any of these areas that will be fundamentally important to our future," Zuckerberg said on the call.
"I know that sometimes when we ship a product ... people say: 'Hey, you're spending all this money, and you've produced this thing,' and I think that's not really the right way to think about it."
"...we're doing leading work that will become ... eventually mature products at different cadences in different periods of time over the next five to 10 years."
He discussed the company's various initiatives, including the recently unveiled $1,500 Quest Pro virtual and mixed reality headset and a social metaverse platform where people can express themselves through avatars.
He stated that Meta is also investing in augmented reality and neural interfaces.
"The metaverse ... feels like a one big gamble given the economic crisis," said Paolo Pescatore, an analyst at PP Foresight, adding that the journey ahead was going to be "long and painful".
"People are not rushing out of their seats to buy a VR headset or even watch 360 degree videos ... The new device still feels like an expensive toy," he said.
At a time when other tech companies like Microsoft and Google parent Alphabet are cutting or slowing hiring, Meta's headcount increased 32% from the end of the second quarter.
Altimeter Capital Management, a Meta shareholder, urged Zuckerberg in an open letter on Monday to streamline the company by cutting jobs and capital expenditure.
The fund proposed that Meta limit annual investments in the metaverse to $5 billion rather than the current $10 billion.