Shares of the company formerly known as Facebook saw a
historic plunge Thursday after the social media giant reported a rare profit
decline due to a sharp rise in expenses, shaky ad revenue growth, competition
from TikTok and fewer daily U.S. users on its flagship platform.
At the same time, it invested more than $10 billion in CEO
Mark Zuckerberg's ambitious plan to transform Meta Platforms Inc. into a
virtual reality — actually, make that “metaverse-based” — company.
Meta’s shares fell more than 26% to $237.76 in afternoon
trading Thursday, lopping more than $230 billion off the company’s overall
value, or market capitalization. That's the largest single-day decline for a
company on record.
“Meta is sacrificing its core business model for its
fascination with the metaverse," said Rachel Jones, an analyst with the
research firm GlobalData. "Betting big on the metaverse isn’t a bad thing
— the technology is set to be huge and provide a multitude of opportunities —
but it will take at least another decade to really get going.”
While tech companies are accustomed to making big bets on
futuristic-sounding ideas that sometimes become reality — and come with a huge
payoff — 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 “continued concern that Facebook’s past challenges
will follow Meta into the metaverse," said Mike Proulx, research director
at Forrester Research. "The company has work to do to convince consumers
that Meta’s expression of the metaverse is a good thing,”
Since Meta took on its new name last fall, the company has
been shifting resources and hiring engineers — including from competitors like
Apple and Google — who can help Zuckerberg realize his vision.
Think of the metaverse as the internet brought to life, or
at least rendered in 3D. Zuckerberg has described it as a “virtual environment”
in which you can immerse yourself 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 might sound like science fiction, but then again, not
long ago so were computers that fit in your pocket, driverless cars and
microwaves that talk to you. Technology barrels ahead whether we like it or not
and, to quote a vintage Facebook motivational poster in the company's
headquarters, “fortune favors the bold.” Despite an enormous backlash to
Facebook's problems ranging from misinformation and privacy mishaps 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.
In a Wednesday conference call, Zuckerberg said the company's
investments this year will focus on Reels — a TikTok-esque short form video
service on Instagram — as well as messaging, ads, commerce, privacy, artificial
intelligence “and, of course, the metaverse.”
“Making meaningful progress across all seven of these areas
is going to improve the services we offer today and will help power a social,
intuitive, and entertaining metaverse,” he said. But he acknowledged that
"this fully realized vision is still a ways off, and although the
direction is clear, our path ahead is not perfectly defined.”
But while Wall Street's metaverse optimism appears to fall
well short off Zuckerberg's, Meta's rivals are ramping up their own metaverse
projects. This includes Apple, Google and Microsoft, which recently bought the
video game company Activision Blizzard with the hopes of accelerating its
ambitions for the metaverse.
But it's not just the big companies. According to app
analytics company SensorTower, 86 apps added “metaverse” to their title or
description from November 2021 through January of this year. To date, 552
mobile apps include the term “metaverse” in their title or description.
Stifel analyst Mark Kelley sought to calm investors, noting
that Zuckerberg outlined not one but seven investment priorities for the company
this year. He said he doesn't think Meta's initial goal of reaching 1 billion
metaverse users is a stretch — and importantly, he believes only 40% would be
gamers, signaling its broader appeal.
Meta’s stock plunge doesn’t discourage metaverse enthusiast
and venture capitalist Matthew Ball, who months before Facebook’s renaming
started an index fund of metaverse-related companies. Meta the company is one
of the 45 stocks in Ball’s index.
“Mark’s focus on the next-generation internet is actually
justified by the fact they can see in their core business that growth is
slowing, that users are shifting elsewhere, and in particular, young users are
shifting to these virtual and immersive worlds where they’re a small
participant and where their investments are focused,” he said. -AP
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