(Bloomberg) – Meta Platforms Inc. CEO Mark Zuckerberg has asked investors to be patient with the social media giant’s growing investment in unproven bets at an already difficult time for digital advertising companies.
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Shares of the company fell about 20% in premarket trading ahead of the opening of trading in New York on Thursday after giving a disappointing quarterly earnings outlook. In a call on Wednesday, Zuckerberg sought to justify Meta’s inflated costs to fund his version of virtual reality, the Metaverse, as well as the artificial intelligence powering major changes to his social networks.
Investors, who have already sent the stock down 61% this year, are not buying it yet. Zuckerberg said he was confident that Meta’s biggest bets in areas such as short video, commercial messaging and the metaverse were going in the right direction – he just couldn’t say for sure how big would be. gain.
“I think we’re going to work out each of these things over different periods of time,” Zuckerberg said. “And I appreciate patience and I think those who are patient and invest with us will eventually be rewarded.”
This is proving a tough sell when the company expects its already declining revenue to fall below analysts’ expectations and its costs to rise. On Wednesday, Meta said third-quarter revenue was down 4.5% from a year earlier, only the second time the company’s sales have fallen – the first being last quarter. Over the last three months of the year, Meta expects this trend to continue. The company’s fourth-quarter guidance was on the lower end of analyst estimates.
Meta now expects total spending for this year to be $85 billion to $87 billion. For 2023, that number will increase to $96 billion to $101 billion, the company said Wednesday.
Read more: Meta tumbles as sales forecast shows depth of ad market weakness
The company, which changed its name from Facebook to Meta a year ago, is also betting big on the Metaverse, the virtual reality-powered gathering places that Zuckerberg says will host the future of work and communication. The effort is losing meta billions, and the company expects to lose more money in the metaverse market next year.
Meta is not the only Internet company to suffer from a weak advertising market; Alphabet Inc. and Snap Inc. were hammered on similarly lackluster results. It’s the only company that’s overhauling how its social media platforms work while spending about one in every 10 dollars it generates in sales on a virtual future that’s still years away.
Over the past year, Meta has changed the Facebook and Instagram experiences to show more algorithmically curated content and fewer posts from the people users follow. It also prioritizes short-form videos, called Reels, in response to ByteDance Ltd.’s popular TikTok app, which has saved users time and accustomed them to a stream of vertical videos based on specific interests.
Meta’s old social media products must remain popular enough to generate the ad revenue that will fund Zuckerberg’s metaverse vision. In the third quarter, 4% more people spent time on Meta’s platforms every day, compared to the same period last year, with 2.93 billion daily active users. Every month, the tech giant saw 3.71 billion active users for its app family, which also includes Messenger and WhatsApp.
On Wednesday, the company boasted that Instagram had surpassed 2 billion monthly active users, and said those people were spending more time watching Reels — and marketers were spending to advertise there, to an implied rate of $3 billion in revenue per year. But Reels is weighing on its revenue, to the tune of $500 million in the last quarter, as the new product cannibalizes other ad space that monetizes at faster rates. It could take up to 18 months for that to change, Zuckerberg said.
“What investors are feeling right now is that there are just too many experimental bets compared to proven bets in the core,” Jefferies LLC analyst Brent Thill said on the call. results with the leaders of Meta.
Zuckerberg has already asked for patience. In 2015, questions from investors focused on when WhatsApp, Instagram and Messenger would make money. The difference then was that these apps already had hundreds of millions of users each.
“Meta needs to turn its business around,” said Insider Intelligence analyst Debra Aho Williamson. “As Facebook Inc., it was a groundbreaking company that changed the way people communicate and the way marketers interact with consumers. Today, it’s no longer that innovative pioneer.
(Updates with premarket exchanges in second paragraph.)
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