Mark Zuckerberg said his company was going to bet everything on him. metaverse last year. On Wednesday, he showed the costs of making that transition.
Meta, the company that Zuckerberg founded as Facebook, said its Reality Labs division, which makes virtual reality goggles, smart glasses and other products yet to be released, lost more than $10 billion in 2021 while building the business. Those products are key to Zuckerberg’s vision of the metaverse, a next-generation Internet where people would share virtual worlds and experiences across different software and hardware platforms.
It was the first time that Meta revealed the results of its hardware division. In the past, the company hasn’t broken out those numbers because products like virtual reality headsets were a small part of its overall business, which relies on social media and digital advertising. Investing $10 billion in the metaverse is more than five times the amount of money Facebook paid to buy the Oculus VR business in 2014 and 10 times what it paid to buy Instagram in 2012.
The spending dragged down Meta’s quarterly profit, which fell 8% to $10.3 billion in the three months ending December from a year earlier, even as revenue rose 20% to $33.7 billion over the same period. Wall Street analysts had forecast a profit of $10.9 billion on revenue of $33.4 billion.
At the same time, Meta said its social media businesses, including Facebook and Instagram, were taking a hit from another change by a rival tech giant. Meta said that he expected his financial performance to be affected by AppleChanges to its mobile operating system, in which the iPhone maker last year made it harder for apps to track the digital habits of iPhone users. The move has hurt social media companies because it has given them less data to serve targeted ads to people. Meta said the changes would cost it about $10 billion in ad revenue this year.
Increased spending in the metaverse and the effect of Apple’s changes have combined to create a difficult transition period for Facebook as it transforms into Meta. The results were highly unusual for a company that for years has churned out stellar financial performance like clockwork, fueling scandals over privacy and misinformation and other toxic content. On Wednesday, in response to the earnings report, shares of Meta plunged about 22% in after-hours trading.
“It’s time for a reality check on where Meta stands for the metaverse,” said Raj Shah, a technology analyst at Publicis Sapient, a digital consulting firm. “The metaverse is a long way from being profitable or filling the gap in ad revenue after Apple’s policy change.”
In a call with investors after revealing Meta’s results, Zuckerberg, the CEO of Meta, seemed to acknowledge the difficulties. “Although our direction is clear, it appears that our path forward is not perfectly defined,” he said.
But he also defended the shift to the metaverse, saying his company had overcome challenges before. “Ultimately, our continued success is based on creating products that people find valuable and that people want to use,” Zuckerberg said.
For years, Meta has tried to become less dependent on Apple, which holds the key to iPhone users, and to steer clear of social media controversies involving misinformation and hate speech. Then, in October, Zuckerberg announced that he planned for his company to take a new path into the metaverse. He renamed Facebook as Meta. Since then, the company has embarked on a radical internal transformation, restructuring itself and pushing employees to join teams working in augmented reality and virtual reality.
Meta spending is unlikely to slow down any time soon, especially as it finds itself in a full-throttle race against other tech giants to reclaim ground in the theoretical metaverse. last month when Microsoft said it was buying video game maker Activision Blizzard for nearly $70 billion, the software maker cited the deal as a building block for the metaverse, even though Activision doesn’t produce VR games. Google has been working on metaverse-related tech for years, and Apple has its own devices in the works.
At the same time, Meta’s wildly profitable businesses are in a period of change. Sheryl Sandberg, chief operating officer of Meta, said on Wednesday’s call with investors that Instagram was heavily promoting a video product called Reels, which competes with TikTok. While Reels is the biggest contributor to Instagram growth, it doesn’t make as much money from ads as other Instagram products like Stories and the main photo feed.
On the call, Zuckerberg also pointed to the difficulties of competing with TikTok, which has become increasingly popular with younger audiences. David Wehner, Meta’s chief financial officer, added that Apple iOS The changes boosted Google’s ad business, which doesn’t rely on Apple for ad data.
Alphabet, the parent company of Google, on Tuesday reported a 36% increase in profit and a 32% increase in revenue in the last three months of 2021 from a year earlier.
Still, the number of users of Meta’s social networking apps continued to rise. Monthly active users of Facebook, Instagram, WhatsApp and other apps rose 9% to 3.59 billion in the quarter from a year earlier, the company said. The company added that more than a billion users interact with business accounts using services like WhatsApp and Messenger every week.
However, Facebook’s main app seemed to peak in at least some markets; During the quarter, the app lost 1 million users worldwide for the first time, down from the previous quarter.
Meta also announced plans to change its stock code so that its shares trade under the symbol META, instead of FB, on the Nasdaq exchange.
This article originally appeared in The New York Times.