META -22.72%
parent Meta Platforms Inc. lost more than one-fifth of its market value Thursday after the company reported a drop in quarterly revenue, warned of climbing costs and said losses will accelerate next year at the unit leading the charge on its metaverse ambitions.
Shares of Meta slid more than 21% to $102.04 in morning trading, wiping out roughly $76 billion of the Menlo Park, Calif., company’s market value and returning to levels not seen since 2016. The stock has dropped nearly 70% in 2022.
Meta’s revenue dropped 4% in the recently ended quarter, its second consecutive quarter of declining revenue, as the social-media giant battles growing competition from rival TikTok and fallout from
Apple Inc.’s
AAPL -2.12%
ad-tracking changes. Tightening macroeconomic conditions are weighing on advertiser spending, the company said, and the strong dollar also hit revenue.
Those challenges come as Meta Chief Executive Officer
Mark Zuckerberg
pushes forward with his expensive pivot to the metaverse, an endeavor that has already cost the company billions. Meta Chief Financial Officer
David Wehner
said Wednesday that losses at the unit, Reality Labs, will grow significantly next year. After that, he said, the company plans to pace investment in Reality Labs and focus on growing the overall company’s operating profit.
Analysts homed in on Mr. Wehner’s comments that total costs for 2023 will continue to grow to a range of between $96 billion and $101 billion. The company’s additional expenditures are expected in data centers, servers and infrastructure, as its payroll costs hold steady.
“Meta appears to have limits on how fast it can pull back expenses,” KeyBanc analysts said Thursday in a research note.
James Lee
and
Wei Fang,
analysts at Mizuho, said the company needs to do more to lower operating costs.
Analysts at Raymond James said accelerating losses at Meta’s Reality Labs unit are unlikely to sit well with investors “given its unproven business model.” The unit, which is driving the company’s virtual-reality and metaverse efforts, posted a nearly 49% drop in revenue to $285 million and had an operating loss of $3.7 billion for the recently ended quarter, the company said.
Mr. Zuckerberg said Wednesday that he was encouraged by the company’s progress in responding to the tougher environment. “I have to say that our product trends look better from what I see,” he said on a call with analysts.
Stifel analysts said Meta’s commentary on underlying advertising trends were better than what other companies have said this earnings season. The analysts said there is also likely less of a headwind from Apple’s ad-tracking changes going forward, and that monetization of Instagram Reels, a short-video feature, is improving.
“None of that matters, however, when ’23 expenses are significantly ahead of expectations, particularly when Reality Labs losses are indicated to grow ‘significantly,’” the analysts said.
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