Meta’s recent rebranding marked a stark commitment to building out the metaverse. However, it appears that the risky move caused the firm’s valuation and shares to plummet.
This week, the company revealed disappointing earnings for the fourth quarter of 2021, as well as a drop in active users. This led its shares to fall 22.9% to $249.05 and slashed $200 billion off its valuation.
Formerly known as Facebook, Meta made a huge pivot last year in preparation for a new “virtual environment” called the metaverse. Through this digital environment, people can interact, work, and socialize wearing virtual reality headsets.
To do this, Meta invested over $10 billion in its Reality Labs sector, which includes VR headsets and other augmented reality tools. It also grew its workforce by 23%, some of which comes from former Apple and Google employees.
Meta has been warning of low profits for a while now, citing supply chain issues, labor shortages, and Apple’s recent privacy changes that make it hard for the company to track people.
“It is time for a reality check on Meta’s position for the metaverse,” said Raj Shah, an analyst at digital consulting firm Publicis Sapient. “The metaverse is a long way from being profitable or filling the gap in ad revenue after Apple’s policy change.”
Meta revealed that it earned $10.29 billion in the last three months of 2021, which is down 8% from $11.22 billion seen during the same time one year prior. While its shares fell to $3.67, revenue did rise 20%.
According to FactSet, analysts predicted that Meta would see earnings of $3.85 per share on revenue of $33.36.
Mark Zuckerberg’s bet on the metaverse caused somewhat of a domino effect, with other tech giants also making moves to make a footprint in what is expected to be the next iteration of the internet.
However, the metaverse is in its infancy and barely a tangible goal. With Meta’s recent losses (and predicted future losses) scaring investors, its future could be in jeopardy.
“There’s a lot of uncertainty about Meta’s investments in the metaverse and if or when they will have a positive impact on the company’s bottom line,” said Debra Aho Williamson, an analyst with Insider Intelligence.