Facebook rattled investors on Wednesday by posting a rare drop in earnings, driven by the company’s heavy spending on its vision of a so-called metaverse while simultaneously facing advertising challenges on its existing services.
The company, formerly known as Facebook, posted net income of nearly $10.3 billion in the last three months of last year, down 8% from the same period last year. previous year and below Wall Street analysts’ projections.
The drop in earnings comes as Meta invests heavily in VR and AR technology it says will help build the Metaverse, a hitherto conceptual immersive form of the internet that CEO Mark Zuckerberg has identified as the future of the company. At the same time, Meta is fighting a change to Apple’s iOS that has weighed heavily on its core advertising business.
Shares of Meta plunged as much as 22% in after-hours trading following the report.
Meta reported a loss of more than $10 billion for the year at its AR and VR unit, Reality Labs, the first time it released financial data for the unit. CFO Dave Wehner previously warned that investments in Reality Labs would cut the company’s overall operating profit in 2021 by about $10 billion. The unit brought in just $2.3 billion in revenue during the year.
“Investors will be watching these numbers closely as an early indicator of how far the metaverse is from a profitable reality,” Tom Johnson, global digital director at media agency Mindshare Worldwide, said in an emailed comment.
Meta reported slowing growth in its core advertising business, which still accounts for around 99.5% of its total revenue. Ad revenue grew 20% year-over-year — its slowest growth rate of the year — to $32.6 billion as iOS changes made targeted advertising more difficult. The company also failed to grow its daily or monthly active user bases on Facebook as of the third quarter, an unusual shortfall for the company.
The company’s total revenue for the year reached nearly $118 billion, the first time its annual revenue exceeded $100 billion.
Meta also shared a rough forecast for the next quarter, saying it expects revenue to grow only between 3% and 11% due to “headwinds from impression and price growth.” in its advertising activity. He added that his platforms are facing increased competition for people’s time and users have turned to video products like Instagram Reels, which are harder to monetize.
The disappointing results also come after months of critical media coverage and hearings with lawmakers linked to the Facebook Papers, a series of recent exits from top executives and amid conversations among regulators about how to crack down on the giant. of technology.
Going into 2022, “Meta can only deliver single-digit revenue growth,” Scott Kessler, Third Bridge’s global business leader, said in an email. “And that is above all other legal and regulatory development and action. It seems like a lot [investors] reevaluate in real time.”
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