Meta has invested a huge amount of money in creating its metaverse. Unfortunately for the company, Reality Labs, the division dedicated to virtual and augmented reality, continues to lose money. The company reported a quarterly loss of $2.81 billion.
Meta-stock drops 50% in 2022
Meta, the parent company of Facebook, WhatsApp, Instagram and Messenger, has just released its Q2 2022 financial results. The social media giant recorded a drop in sales for the first time. Neither the Cambridge Analytica scandal in 2018 nor the advertising market slowdown at the start of the Covid-19 pandemic had put him in this position.
The California-based group experienced a drop in revenue for the first time since its IPO in 2012. Quarterly revenue was $28.8 billion, down 1% from a year earlier. In the US market (-4%) and especially in Europe (-12%), the company experienced a more pronounced decline, influenced by the appreciation of the dollar against the euro and a decline in daily Facebook users (- 4 million).
For a group accustomed to staggering double-digit growth, this is exceptional to say the least. Net income was $6.6 billion, down 35%.
“It appears that we have entered a phase of economic slowdown that will have a major impact on the digital advertising industry,” CEO Mark Zuckerberg acknowledged after the results were released. It is always difficult to predict the depth or duration of these cycles.”
In short, Meta is going through a period of unprecedented turmoil, even as it changes its strategic model. “We will have to do more with fewer resources,” said CEO and founder Mark Zuckerberg. Following the announcements, the stock price fell 5% in post-close trading. In total, Meta shares are down 49.91% since the beginning of the year.
Different explanations for this fall
While Meta gets more than 97% of its revenue from online advertising, the state of the advertising market has caused this situation. Businesses are restricting spending as a precaution, and advertising is one of the hardest hit categories. The average price per ad fell 14% and while the company saw a 47% growth last year compared to the previous year, companies like Google, Twitter and Snap cited the difficult economic environment as the reason for their poor results.
Although the advertising market is struggling, Meta’s biggest challenge is the TikTok video app. Mark Zuckerberg even admitted it himself. The application is growing very fast and attracting the attention of many users, especially young people. Instagram and Facebook (to a lesser extent) both struggle to capture the attention of these users.
Meta struggles because the ad revenue base is too chaotic. They had to lower their expectations for new hires, just like the entire tech industry, and tried to refocus their business on the metavers. While Reality Labs made $452 million in revenue, Facebook’s metaverse division lost $2.8 billion in the second quarter.
Reality Labs’ disastrous financial results come days after a survey questioned consumer interest in virtual worlds. According to the research, consumer expectations are at odds with the way virtual worlds are designed.
Despite these setbacks, Mark Zuckerberg remains determined to continue the evolution of the digital world into virtual and augmented reality. The future will tell us whether he was right or not.