Meta Shares Nosedive 25% as $10B Metaverse Bet Trims Profits

Global social media conglomerate Meta lost 25% in market value on Thursday after its $10 billion investment in the metaverse dented its bottom line.
Image source: Facebook

Quick take:

  • Meta shed $223 billion in market value after disappointing fourth-quarter results.
  • The stock fell 25% on Thursday as investors reacted to the earnings miss and weak FQ1, 2022 guidance.
  • The company invested $10 billion towards the development of the metaverse, which affected its bottom line.

Since Facebook changed its corporate name to Meta Platform last October, the metaverse has become one of the most widely talked about subjects in the media. The virtual world has attracted some of the biggest companies in the world, including Microsoft, which paid $69 billion to buy Activision Blizzard last month.

Yet, Meta’s latest quarterly results are sending a different picture from what the world expected. The social media giant said its $10 billion investment towards the development of the metaverse dented its bottom line, an announcement that was followed by a whopping 25% decline in the stock price.

As a result, Meta has lost $223 billion in market value over the last 24 hours with investors reacting to its massive earnings miss and weak guidance for the fiscal first quarter of 2022. 

Meta also said the continuing row between platforms and Apple over privacy settings contributed to the disappointing bottom line.

The company expects sales for the current quarter to fall below market forecasts because of a potential hit in advertising revenue related to privacy settings. 

Last October, Meta said it would be breaking down its augmented and virtual reality revenue from the revenue mix. The segment reported a net loss of $10.2 billion, mirroring its huge investment in the development of the metaverse. In the previous year, the unit registered a net change of -$6.6 billion. 

Speaking during a conference call with investors, Mark Zuckerberg, Meta founder and chief executive said the company had a solid quarter with people turning to its products to stay connected while businesses continued to use the company’s platforms to grow.

“I’m encouraged by the progress we made this past year in a number of important growth areas like Reels, commerce, and virtual reality, and we’ll continue investing in these and other key priorities in 2022 as we work towards building the metaverse,” Zuckerberg added.

Meta Platforms also said it will complete the rebrand later this year, adopting the stock ticker symbol (META) to move on from (FB).

The most recent quarterly results are Meta’s first since becoming Meta Platforms, and analysts think it could be a rough change of direction before things smooth out due to the company’s reliance on advertising revenues.

So, short-term pain for long-term gain? Meta’s metaverse journey is about to get more interesting after rolling out 3D avatars on Instagram stories, Facebook and Messenger. It also revealed its gigantic AI supercomputer that it believes will play a crucial role in developing the metaverse.

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