Oct 26 (Reuters) – Wall Street is losing patience over huge, experimental bets by Meta (META.O) boss Mark Zuckerberg on his Metaverse project that has helped boost the company’s overall costs by a fifth in the third trimester.
Investors rushed to dump shares of Meta Platforms Inc after hours, sending it tumbling 20% and wiping $67 billion off its market value after the company posted its fourth straight quarterly profit decline .
Facebook’s parent company said its overall spending could increase by as much as 16% next year and predicts that operating losses at Reality Labs – the unit responsible for bringing the metaverse to life – will “significantly increase” next year.
A Meta shareholder recently raised concerns, calling the company’s investments “oversized and terrifying.” Analysts on Wednesday called them “puzzling and disconcerting” and Meta’s inability to cut costs “extremely worrying.”
On a post-earnings conference call, Jefferies analyst Brent Thill asked executives: “I think to sum up what investors are feeling right now is that there’s just too much of experimental bets versus proven core bets…I think anyone would. Love to hear why you think it pays off.”
In the July-September quarter, Reality Labs’ losses climbed to $3.67 billion from $2.63 billion a year earlier. Income almost halved.
“It would be a mistake on our part not to focus on any of these areas that will be fundamentally important to our future,” Zuckerberg said on the call.
“I know sometimes when we ship a product… people say, ‘Hey, you spent all that money and you produced this thing,’ and I think that’s not really the right way to think about it. “
“…we are doing top-notch work that will…eventually become mature products at different paces and at different times over the next five to 10 years.”
He talked about the company’s various endeavors, including a recently unveiled virtual and mixed reality headset called Quest Pro priced at $1,500 and a social metaverse platform where people can express themselves through avatars.
He said Meta is investing in two other areas: augmented reality and neural interfaces.
“The metaverse… looks like a big gamble given the economic crisis,” said PP Foresight analyst Paolo Pescatore, adding that the journey ahead was going to be “long and painful”.
“People aren’t rushing out of their seats to buy a VR headset or even watch 360-degree videos… The new device still looks like an expensive toy,” he said.
At a time when other tech companies such as Microsoft (MSFT.O) and Google-parent Alphabet (GOOGL.O) are cutting jobs or slowing hiring, Meta’s workforce jumped 32% in the third quarter from the end of the second.
In an open letter to Zuckerberg on Monday, Meta shareholder Altimeter Capital Management called on Meta to streamline by cutting jobs and capital expenditures.
The fund suggested that Meta cap annual investments in the metaverse at $5 billion instead of the current $10 billion.
Reporting by Chavi Mehta in Bengaluru and Katie Paul in Palo Alto, Calif., additional reporting by Sheila Dang in Dallas; Written by Sayantani Ghosh; Editing by Sam Holmes
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