Zuck out of luck: Facebook’s Meta hit with $3.7bn third-quarter metaverse losses
11:19, 27 October 2022
Facebook-owner Meta Platforms (META) has seen its shares plummet in value by 22% after metaverse division Reality Labs recorded a $3.67bn (£3.17bn) Q3 loss for 2022.
It came as Q3 profits for META halved to $4.4bn compared with the same period a year ago. Mark Zuckerberg, Meta founder and chief executive, has seen his personal net worth drop by $10bn as a result of the shares sell-off.
Meta Platforms (META) share price chart
Meta’s Q3 results showed overall revenue was down 4% on Q3 2021 at $27.7bn, mainly as a result of falling advertising sales due to the global economic slowdown.
The company has also been hit by Apple’s restrictions on tracking and data sharing from within iPhone apps. The big story, however, is the growing amount of cash being swallowed by research and development (R&D) on the company’s metaverse project.
Meta’s R&D costs rose from $6.3bn in Q3 2021 to $9.1bn in Q3 2022, while for the nine months ended 30 September 2022, R&D consumed $25.5bn compared with $17.6bn in the same period last year.
Reality Labs’ revenues almost halved in Q3 2022 to $285m from $558m in Q3 2021 while its third-quarter losses for 2022 rose to $3.67bn from $2.63bn a year previously.
Metaverse division’s losses will grow, warns CFO
Meta chief financial officer (CFO) David Wehner warned in the company’s earnings release that “Reality Labs’ operating losses in 2023 will grow significantly year over year”.
However, he added: “Beyond 2023, we expect to pace Reality Labs investments such that we can achieve our goal of growing overall company operating income in the long run.”
More than $65bn (£56bn) was wiped off Meta’s market value during Q3 of 2022 after the company failed to convince investors that its investment into the metaverse would pay off.
Zuckerberg admits there are “near-term challenges on revenue” but remains hopeful that “the fundamentals are there for a return to stronger revenue growth”.
Debra Aho Williamson, an analyst at Insider Intelligence, a market research company said: “Meta is on shaky legs when it comes to the current state of its business. Zuckerberg’s decision to focus his company on the future promise of the metaverse took his attention away from the unfortunate realities of today.”
S&P Capital IQ had estimated Q3 net income to come in at $5bn (£4.3bn).
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Predicted expenses to increase in 2023
The company believes expenses will range from $96bn to $101bn in 2023, a rise from $85bn to $87bn in 2022.
Meta said it was “making significant changes across the board to operate more efficiently” and had “increased scrutiny on all areas of operating expenses”. However, it warned this will take time.
Was Buterin right?
In August, Vitalik Buterin co-founder of ethereum (ETH) said he did not believe that any of the current “corporate attempts to intentionally create the metaverse are going anywhere”, adding the attempt by Meta will “misfire”.
ETH to USD
In response to Dean Eigenmann, co-founder of Dialectic, Buterin said via Twitter that the metaverse “is going to happen”, but he does not believe any “existing corporate attempts to intentionally create the metaverse are going anywhere”.
In the same Twitter thread, Buterin targeted Meta, saying that because nobody fully understands “the definition of the metaverse yet” and as it is “far too early to know what people actually want”, anything “Facebook creates now will misfire”.
Meta is one of 35 companies that have signed up to the Metaverse Standard Foundation (MSF). The MSF “provides a venue for cooperation between standards organisations and companies to foster the development of interoperability standards for an open and inclusive metaverse, and accelerate their development and deployment through pragmatic, action-based projects.”
Microsoft, Alibaba and Sony are also members of the MSF, which states any company is free to join.
The "metaverse" is going to happen but I don't think any of the existing corporate attempts to intentionally create the metaverse are going anywhere. https://t.co/tVUfq4CWmP
— vitalik.eth (@VitalikButerin) July 30, 2022
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