One of the failures of the last year

A year ago, Meta was at the top of the “Metaverse”. The company recently completed a rebranding from Facebook to Meta. Social media, as Mark Zuckerberg explained, will no longer be the company's sole focus. “From now on, we will be Metaverse first, not Facebook”, he said.

Now that Meta has completed its first full year as a “Metaverse Company”, the outlook is considerably less rosy. The company has lost billions of dollars at Reality Labs, the division that oversees work with the metaverse. The company has laid off thousands of employees for the first time with mass layoffs. Even longtime shareholders are beginning to do what was once unthinkable: question Zuckerberg's vision of the future. At the same time, Meta has not yet clearly articulated what the metaverse is or explained why the billions of people currently using its social networking apps would want to be part of the “embodied web”.

To make matters worse, the company's initial Metaverse product was disappointing and turned the Metaverse into a highlight rather than a source of expectation.

Meta and Zuckerberg have come up with different definitions over the past year. The Metaverse is the “successor to the mobile Internet” and “the embodied Internet you are on”. It is virtual reality, but also (ultimately) augmented reality. It will also connect in some way to our existing social graphs on Facebook and Instagram. But unlike Facebook and Instagram, it will be compatible with platforms of other companies. It may have something to do with NFT and web3.

“The defining feature of the metaverse is that you really feel like you're with other people or in a different place”, Zuckerberg said during an interview at SXSW in February 2022. “You can view documents, you can view a Web site, but in the future,  you will be on it”.

The financial side of the disaster occurred when details of the latest financial report were released. The proof of this was the profit figure for the quarter, which fell by 52 percent. The multinational company dropped out of the “Top 20” of the world's largest companies by market capitalization. And near the same in the ranking of U.S. companies.

Apple's anti-tracking changes to iOS have hurt the company's advertising business. And the entire industry is suffering from an economic downturn that has affected even the biggest tech giants.

Apple's anti-tracking changes to iOS have hurt the company's advertising business. And the entire industry is suffering from an economic downturn that has affected even the biggest tech giants.

At the same time, Meta is undoubtedly losing huge amounts of money on its investments in the metaverse. Reality Labs lost $10 billion in 2021 and lost $9 billion in 2022 by the third quarter. These losses are expected to “increase significantly” in 2023, according to the company's chief financial officer.

The profit trend through September was slightly better. And it even showed an increase of 0.2 percent when looking at the overall figures for the year. But more pronounced is also the increase in the invoice chapter. What do these numbers really mean? About a very serious fall in the stock market. Since the announcement, the company's shares have fallen by more than 20 percent, which represents a significant loss in value.

The brand has a market capitalization of $263 trillion, according to the latest Investing data. That is significantly lower than the values it has actually managed. In February 2022 it has already seen a significant drop of 26.4 percent.

Do valuations reflect this? Although valuations are just valuations, they provide context. Yes, there are significant changes in the case of Meta. In December 2022, according to Bloomberg, it was removed from the list of the world's 20 largest companies, giving it a market value of $267.8 billion and placing it below Exxon, Johnson & Johnson and major tech companies such as Tesla, Amazon, Alphabet, Microsoft and Apple. By market capitalization at the beginning of the year, Meta was the sixth largest company in the United States.

Similar trends are marked by market capitalization ratings. In the world ranking of the largest companies by market capitalization, Meta ranks 26th. Behind Samsung, Roche, Nestlé, Mastercard, TSMC, and NVIDIA. It would rank 20th among U.S. companies.

Meta is facing some challenges in addition to the impact of the economic recession on the advertising industry. These problems are compounded by the weight of other platforms such as TikTok or Twicth. Meta shows that its user base is still expanding. But pressure from competitors has forced it to tiktoki its platforms.

What about the metaverse? Without knowing the answer to this fundamental question, it would be difficult to accept the Meta's most recent results. Zuckerberg has made a firm decision to bet on a new virtual environment. And this translates into a significant, very strong burden on brand treasuries.

Despite the sharp decline in projected revenue growth, “Meta remains overly aggressive in its long-term plans”. According to Mandeep Singh, analyst at Bloomberg Intelligence, given the lack of success to date with its efforts in the metaverse. It is difficult to talk about the brand's capital and operational spending forecast for 2023. The accounts show that the plan's annual costs are between $85,000 and $87,000 million.

So, it is no wonder that Meta investors are beginning to wonder if all these metaverses are really worth it. The CEO of Altimeter Capital, a longtime Meta shareholder, made headlines when he wrote an open letter to Mark Zuckerberg earlier this year calling the company's investments in the metaverse “outsized and terrifying even by Silicon Valley standards”.

In a speech to investors, Zuckerberg acted calm and confident. After the results were released, he said, “I believe that those who are patient and invest in us will eventually be rewarded”. Zuckerberg said, “Although we are facing immediate revenue challenges, we are well positioned to return to stronger revenue growth. The company will be very productive next year”.

In the company's latest earnings report, in which Zuckerberg is more likely to ask pointed questions about the company's advertising business, one analyst also raised the issue of “experimental versus tested rates”.

“I think everyone wants to know why you think it pays off”, he asked. Zuckerberg, who seemed a bit perturbed by the question, replied that “working on the metaverse is a long-term set of efforts that we're working on, but I think it will work out in the end”. Patience will be rewarded, he said.

Original column by Katehon Think Tank

Translation by Costantino Ceoldo