Meta invested a huge amount of money in creating his metaverse. Unfortunately for the company, Reality Labs, the unit dedicated to virtual and augmented reality, continues to lose money. The company announced a quarterly loss of $ 2.81 billion.
The meta stock drops by 50% in 2022
Meta, the parent company of Facebook, WhatsApp, Instagram and Messenger, has just released its financial results for the second quarter of 2022. For the first time, the social media giant has seen a decline in revenue. Neither the Cambridge Analytica scandal of 2018 nor the slowdown in the advertising market at the start of the Covid-19 pandemic had put him in this position.
The California-based group faced a decline in revenue for the first time since its IPO in 2012. Its quarterly revenue was $ 28.8 billion, down 1% from the previous year. In the US market (-4%) and especially in Europe (-12%), the company recorded a more pronounced decline, affected by the appreciation of the dollar over the euro and the decline in daily Facebook users (-4 million).
For a group used to dizzying double-digit growth, this is nothing short of exceptional. Its net profit was $ 6.6 billion, down 35%.
“It appears that we have entered an economic slowdown that will have a major impact on the digital advertising industry, its CEO Mark Zuckerberg acknowledged after the results were released. It is always difficult to predict the depth or duration of these cycles ”.
In conclusion, Meta is going through a period of unprecedented turbulence, while changing its strategic model. “We will have to do more with fewer resources,” said CEO and founder Mark Zuckerberg. Following the announcements, the stock price fell 5% in trading after close. In total, Meta shares are down 49.91% from the start of the year.
Different explanations for this fall
Although Meta derives more than 97% of its revenue from online advertising, the state of the advertising market has caused this situation. Businesses are limiting spending as a precaution, and ads are one of the hardest hit categories. The average price per ad fell 14%, and although the company recorded 47% growth last year, compared to the previous year, companies like Google, Twitter and Snap cited the difficult economic climate as a reason for their poor results.
Even though the advertising market is having a hard time, Meta’s biggest challenge is the TikTok video app. Mark Zuckerberg even admitted it himself. The application is growing very quickly and attracts the attention of many users, especially young people. Instagram and Facebook (to a lesser extent) both struggle to grab the attention of these users.
Meta is struggling because its ad revenue base is too chaotic. They had to lower their expectations for new hires, like the entire tech industry, and tried to reorient their business towards the metaverse. Although Reality Labs made $ 452 million in revenue, Facebook’s metaverse division lost $ 2.8 billion in the second quarter.
Reality Labs’ disastrous financial results come just days after a study questioned consumer interest in virtual worlds. According to the study, consumer expectations are at odds with the way virtual worlds are designed.
Despite these setbacks, Mark Zuckerberg remains determined to continue the evolution of the digital world into virtual and augmented reality. The future will tell us if he was right or wrong.