Meta is putting a lot of virtual eggs — and billions of dollars — into the metaverse basket, and Wall Street is pretty anxious about it.
Shares of the company formerly known as Facebook experienced a historic plunge on Thursday after the social media company reported a rare profit decline due to a sharp rise in expenses, shaky advertising revenue growth, competition from TikTok and fewer daily US users on its flagship platform.
At the same time, it invested more than $10 billion in chief executive Mark Zuckerberg’s ambitious plan to transform Meta Platforms into a virtual reality — actually, make that “metaverse-based” — company.
Meta’s shares fell more than 23 per cent to $246.76 in afternoon trading on Thursday, lopping more than $215bn off the company’s overall value, known as its market capitalisation. A drop that big would be the largest ever for a single company on a single day.
“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, 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 — to help Mr Zuckerberg realise his vision.
Think of the metaverse as the internet brought to life, or at least rendered in 3D. Mr Zuckerberg has described it as a “virtual environment” in which you can immerse yourself instead of 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.
Despite an enormous backlash to Facebook’s problems including misinformation, privacy mishaps, teenage mental health and hate speech, Mr Zuckerberg continues to believe that bold bets to steer the company in new directions have generally paid off.
In a Wednesday conference call, Mr 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, advertisements, 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 realised vision is still a ways off, and although the direction is clear, our path ahead is not perfectly defined".
Although Wall Street’s metaverse optimism appears to fall well short of Mr Zuckerberg’s, Meta’s rivals are ramping up their own metaverse projects. This includes Apple, Google and Microsoft.
And it’s not just the big companies. App analytics company SensorTower reported that 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.