Oct 26 (Reuters) – Wall Street is losing patience with Meta ( META.O ) CEO Mark Zuckerberg’s huge and experimental bets on his metaverse project that helped boost the company’s overall costs by a fifth in the third quarter.
Investors rushed to dump Meta Platforms Inc̵[ads1]7;s stock after hours, pushing it down 20% and wiping $67 billion off its market value after the company posted its fourth straight decline in quarterly earnings.
The Facebook parent said total spending could rise as much as 16% next year and expects operating losses at Reality Labs — the unit responsible for bringing the metaverse to life — “to grow significantly” next year.
A Meta shareholder had recently expressed concern, calling the company’s investments “super large and scary”. Analysts on Wednesday called them “confusing and confusing” and Meta’s inability to cut costs “extremely troubling.”
On a post-earnings conference call, Jefferies analyst Brent Thill asked executives, “I think kind of sums up how investors feel right now is that there are too many experimental plays versus proven plays at core … I think everybody would love to hear why you think this is worthwhile.”
In the July-September quarter, losses at Reality Labs increased to a whopping $3.67 billion from $2.63 billion the previous year. Revenue almost halved.
“It would be a mistake for us not to focus on some of these areas that will be fundamentally important to our future,” Zuckerberg said during the call.
“I know that sometimes when we ship a product … people say, ‘Hey, you spend all this money and you’ve produced this thing,’ and I think that’s not the right way to think about it.”
“…we’re doing leading edge work that will become…eventually mature products at different frequencies in different time periods over the next five to 10 years.”
He talked about the company’s various efforts, including a recently unveiled virtual and mixed reality headset called the Quest Pro that is priced at $1,500 and a social metaverse platform where people can express themselves via avatars.
He said Meta is investing in two other areas: augmented reality and neural interfaces.
“The metaverse … feels like a big play given the economic crisis,” said Paolo Pescatore, analyst at PP Foresight, 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 feels like an expensive toy,” he said.
At a time when other technology companies such as Microsoft ( MSFT.O ) and Google parent Alphabet ( GOOGL.O ) are cutting jobs or reducing hiring, Meta’s workforce grew 32% in the third quarter from the end of the second.
In an open letter to Zuckerberg on Monday, Meta shareholder Altimeter Capital Management urged Meta to streamline by cutting jobs and capital expenditures.
The fund proposed the Meta cap on 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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