Meta, formerly Facebook, faces historic drop as storage tanks

Meta is putting a lot of virtual eggs – and billions of dollars – into the metaverse basket, and Wall Street is pretty worried about it.

Shares of the company formerly known as Facebook took a historic plunge on Thursday after the social media giant reported a rare drop in profits due to a sharp increase in spending, growth fragile advertising revenue, competition from TikTok and a drop in the number of daily US users on its flagship platform.

At the same time, he’s invested more than $10 billion in CEO Mark Zuckerberg’s ambitious plan to turn Meta Platforms Inc. into a virtual reality — in effect, make this company “metaverse-based.”

Shares of Meta fell more than 23% to $246.76 in afternoon trading on Thursday, slashing the company’s overall value, known as market capitalization, by more than $215 billion. Such a large drop would be the largest ever for a single company in a single day.

“Meta is sacrificing its core business model for its fascination with the metaverse,” said Rachel Jones, analyst at research firm GlobalData. “Betting big on the metaverse isn’t a bad thing – the technology should be huge and provide a wealth of opportunity – but it will take at least another decade to really kick off.

While tech companies are used to making big bets on futuristic-sounding ideas that sometimes come true — and come with a huge payout — Wall Street doesn’t like uncertainty. There’s also the inconvenient fact of Facebook’s continued difficulty in dealing with toxic real-world effects on its existing platform.

There’s “a lingering concern that Facebook’s past challenges will follow Meta into the metaverse,” said Mike Proulx, research director at Forrester Research. “The company has some work to do to convince consumers that the metaverse expression of Metaverse is a good thing,”

Since Meta took on its new name last fall, the company has shifted resources and hired engineers — including from rivals like Apple and Google — who can help Zuckerberg realize his vision.

Think of the metaverse as the internet bringing to life, or at least rendering it in 3D. Zuckerberg described it as a “virtual environment” you can immerse yourself in instead of just staring at a screen. Theoretically, the metaverse would be a place where people can meet, work, and play using virtual reality headsets, augmented reality glasses, smartphone apps, or other devices.

It may sound like science fiction, but then again, not too long ago, so were computers that fit in your pocket, driverless cars, and microwaves that talk to you. . Technology advances whether we like it or not and, to quote a vintage Facebook motivational poster at the company’s headquarters, “fortune smiles on the bold.” Despite a huge backlash to Facebook issues ranging from misinformation and privacy issues to teen mental health and hate speech, Zuckerberg continues to believe that bold bets to steer the company in new directions have generally paid off. fruits.

During a conference call on Wednesday, Zuckerberg said the company’s investments this year will focus on Reels — a TikTok-esque short video service on Instagram — as well as messaging, ads, commerce, privacy, artificial intelligence “and, of course, the metaverse.”

“Achieving meaningful progress in these seven areas will improve the services we offer today and help fuel a social, intuitive and entertaining metaverse,” he said. But he acknowledged that “this fully realized vision is still a long way off, and while the direction is clear, our path ahead is not fully defined.”

But while Wall Street’s metaverse optimism appears to be falling far short of Zuckerberg’s, Meta’s rivals are stepping up their own metaverse projects. This includes Apple, Google, and Microsoft, which recently acquired video game company Activision Blizzard in hopes of accelerating its ambitions for the metaverse.

But it’s not just the big companies. According to app analytics firm SensorTower, 86 apps added “metaverse” to their title or description from November 2021 to January this year. To date, 552 mobile applications include the term “metaverse” in their title or description.

Stifel analyst Mark Kelley sought to calm investors down, noting that Zuckerberg has set not one but seven investment priorities for the company this year. He said he doesn’t think Meta’s original goal of reaching 1 billion metaverse users is over the top — and more importantly, he thinks only 40% would be gamers, signaling its broader appeal.

The fall in Meta shares hasn’t discouraged Metaverse enthusiast and venture capitalist Matthew Ball, who a few months before Facebook’s renaming launched an index fund of Metaverse-related companies. Meta is one of 45 stocks in the Ball Index.

“Mark’s focus on next-gen internet is actually justified by the fact that they can see in their core business that growth is slowing, users are moving elsewhere, and in particular, younger users are turning to those virtual, immersive worlds where they’re a small participant and where their investments are concentrated,” he said.

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This story has been updated to correct a description of Meta’s market cap drop. The decline was in billions of dollars, not millions.

AP Technology Writer Matt O’Brien contributed to this story.

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