Zuckerberg calls for patience as costs rise

Facebook’s parent company fell 22.1% on Thursday after reporting a decline in revenue for the second consecutive quarter amid declining ad sales and stiff competition from TikTok.

On a call Wednesday, Zuckerberg sought to justify the ballooning cost of Meta by using its version of virtual reality, the Metaverse, as well as artificial intelligence to fuel major changes to its social networks.

Investors, who have already sent the stock down 61% this year, aren’t buying it so far. Zuckerberg said he was confident that Meta’s biggest bets in areas like short-form video, business messaging and the Metaverse were heading in the right direction — he couldn’t say with certainty how big the payout would be.

Zuckerberg said, “I think we’re going to solve all of these things at different times. And I appreciate the patience and I think those who are patient and invest with us are rewarded.” Will be done.”

It’s proving to be a tough sell when the company expects its already falling revenue to be less than analysts expected, and costs will be higher. On Wednesday, Meta said third-quarter revenue fell 4.5% from a year ago, only the second time the company’s sales declined — the first time in the previous quarter. In the last three months of the year, Meta expects this trend to continue. The company’s fourth-quarter forecasts came in below analysts’ estimates.

Meta now expects total spending for this year to be $85 billion to $87 billion. The company said on Wednesday that number would increase from $96 billion to $101 billion for 2023.

Meta is already grappling with both a contraction in market spending due to economic uncertainty and a change in Apple Inc.’s privacy policy, which has made all social media advertising less effective. The company has also cut costs by reducing hiring and priorities to keep its social media platform relevant and focus on expanding its virtual reality offerings.

The company, which changed its name from Facebook to Meta a year ago, is also betting big on the Metaverse, the virtual-reality-fueled gathering places that Zuckerberg thinks will host the future of work and communication. The effort is losing meta billions, and the company expects to lose more money on the Metaverse business over the next year.

Meta isn’t the only Internet company suffering from a weak advertising market; Alphabet Inc. and Snap Inc. Both were impressed by equally weak results. It’s the only company that’s overhauling the way its social media platform works, while adding one out of every $10 it generates in sales on a virtual future that’s still locked.

Over the past year, Meta has changed the Facebook and Instagram experiences to show more algorithmically selected content and fewer posts from people who follow users. It is also prioritizing short-form videos called Reels, in response to ByteDance Ltd’s popular TikTok app, which has won users’ time and accustomed them to a feed of vertical videos based on specific interests.

Meta’s older social media products need to remain popular enough to generate ad revenue that will fund Zuckerberg’s Metaverse vision. In the third quarter, with 2.93 billion daily active users, 4% more people spent time on Meta’s platforms every day compared to the same period last year. Monthly, the tech giant saw 3.71 billion active users for its family of apps, which also include Messenger and WhatsApp.

On Wednesday, the company said Instagram had surpassed 2 billion monthly active users, adding that those people are spending more time watching the reels — and that marketers are spending to advertise there, with $ in revenue. at an estimated rate of 3 billion per year. But Reels pulled on $500 million in revenue in the most recent quarter, as the new product cannibals other ad spaces that monetize at faster rates. Zuckerberg said it could be up to 18 months before the change.

“How investors are feeling right now is that there’s a lot of experimental bets versus proven bets in the core,” Brent Thiel, an analyst at Jefferies LLC, said on the earnings call with Meta executives.

Zuckerberg has asked for patience before. In 2015, investors’ questions focused on when WhatsApp, Instagram and Messenger would make money. The difference then was that those applications already had hundreds of millions of users.

Debra Aho Williamson, an analyst at Insider Intelligence, said, “Meta needs to transform its business. As Facebook Inc., it was a revolutionary company that revolutionized the way people communicate and the way marketers interact with consumers. Today it is no more. That innovative groundbreaker.”