Meta Platforms Inc. Chief Executive Officer Mark Zuckerberg demonstrates Meta Quest Pro during the Meta Connect virtual event in New York, U.S., on Tuesday, October 11, 2022.
Michael Nagel | Bloomberg | Getty Images
Meta CEO Mark Zuckerberg reiterated his commitment to spend billions of dollars developing the metaverse amid investor concerns about the health of his company’s online advertising business.
Speaking to analysts as part of Meta’s third-quarter earnings report, Zuckerberg and other Meta executives answered a series of questions from analysts, who sounded increasingly frustrated with the company’s rising costs and expenses, which rose 19% year over year to 22 $.1 billion up the quarter.
Meta shares plunged 19% after the company reported weak fourth-quarter guidance below analyst estimates. The Facebook parent’s third-quarter revenue fell 4% year over year to $27.7 billion, while profits plunged 52% year over year to $4.4 billion.
Meta’s Reality Labs unit, which is responsible for developing the virtual reality and related augmented reality technology that underpins the yet-to-be-built Metaverse, has lost $9.4 billion so far in 2022. Revenue in that business unit fell nearly 50% year-over-year to $285 million, which Dave Wehner, Meta’s chief financial officer, attributed to “lower Quest 2 sales.”
“We expect Reality Labs’ operating losses to increase significantly year-over-year in 2023,” Meta said in a statement. “Beyond 2023, we expect to accelerate Reality Labs’ investments to meet our goal of growing overall company operating income over the long term.”
Jefferies analyst Brent Thrill said during the earnings call that investors likely feel there is “too much experimental bets versus proven bets at core,” and questioned why Meta thinks experimental bets are performing like the Metaverse will pay off.
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“I just think there’s a difference between something being experimental and not knowing how good it’s going to be in the end,” Zuckerberg replied. “But I think we’re pretty confident with a lot of things that we’re working on across the app family that they’re going to work and be good,” he added, citing the work of the TikTok-like company improve Reel’s short video service, its content recommendation algorithms, business messaging capabilities and online advertising technology.
Though Zuckerberg said he “can’t tell you how big they’re going to scale right now,” any improvement is “kind of a step in the right direction.”
Zuckerberg said that “the metaverse is obviously a longer-term series of endeavors that we’re working on,” and that he thinks “this is going to work out in the end.”
Stunned, Zuckerberg said, “There’s a lot of things happening in the industry and in the world right now, so it’s difficult to just say, ‘We’re going to do this one thing and that’s going to solve all the problems.'”
Meta is facing a number of challenges including the poor economy, the ongoing impact of Apple’s 2021 iOS privacy update that made it difficult for Meta to target ads to users, and competition from gamers like TikTok, Zuckerberg explained.
Long-term investments in the Metaverse will “provide higher returns over time,” he said.
“I think we’re going to resolve each of these things over different periods of time and I appreciate the patience and I think those who are patient and invest in us will be rewarded in the end,” Zuckerberg said.
Zuckerberg acknowledged that part of the reason his company is developing the Metaverse is to ensure it has a platform going forward that isn’t hampered by the choices of its competitors, such as: Apple. But the bigger reason Zuckerberg is developing the Metaverse is so technology companies can be more innovative when they develop both the software and hardware that underpin a computing platform, he said.
“A lot of it is just that when you control more of the stack itself, you can build new and innovative things,” Zuckerberg said.