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In 2021, Meta invested $10 billion on the metaverse, which had a negative impact on earnings

Last year, Mark Zuckerberg said that his firm will be investing heavily in the metaverse. On Wednesday, he demonstrated the financial implications of making that change.

According to Meta, the firm that Mr. Zuckerberg co-founded as Facebook, its Reality Labs branch, which develops virtual-reality goggles, smart glasses, and other items that have yet to be introduced in the market, will lose more than $10 billion in 2021 as it continues to grow the company. They are essential to Mr. Zuckerberg’s vision of the metaverse, a next-generation internet in which users will be able to exchange virtual worlds and experiences across a variety of software and hardware platforms, as well as across various software and hardware platforms.

In this case, it was the first time Meta made public the findings of its hardware business. It has previously refused to provide such figures since items like as virtual-reality headsets were just one component of its broader business, which is heavily reliant on social networking and digital advertising. It is estimated that Facebook will invest $10 billion on the metaverse, which is more than five times the amount of money it spent to acquire the Oculus VR firm in 2014 and ten times the amount of money it paid to acquire Instagram in 2012.

As a result of the increased expenditure, Meta’s quarterly earnings declined by 8 percent, to $10.3 billion, during the three months ending in December from the same time last year, despite the fact that the company’s sales increased by 20 percent, to $33.7 billion, during the same period. According to Wall Street experts, a profit of $10.9 billion on sales of $33.4 billion was expected.

The company also said that its social networking companies, which include Facebook and Instagram, were being buffeted by a new move implemented by a competitor technology behemoth. According to Meta, the company believes that Apple’s modifications to its mobile operating system, which were implemented last year, would have a negative impact on its financial performance. Apple made it more difficult for applications to follow the digital habits of iPhone users. The change has had an impact on social networking firms since it has limited the amount of data they can use to provide customised advertisements to users. Meta estimated that the changes would cost the company approximately $10 billion in ad revenue this year.

The increased expenditure on the metaverse, along with the effects of Apple’s reforms, has resulted in a tough transition time for Facebook as it transitions from being a social network to becoming a metaverse. The findings were exceedingly uncommon for a corporation that has for years produced great financial results on a consistent basis, while being embroiled in controversies involving privacy, disinformation, and other harmful material. As a result of the results report released on Wednesday, Meta’s stock dropped by almost 22 percent in after-hours trade.

A reality check on Meta’s standing in the metaverse, according to Raj Shah, a technology analyst with Publicis Sapient, an international digital consulting business, is overdue. Apple’s policy change has left the metaverse far behind in terms of profitability and filling the revenue void left by Apple’s policy change.

Mr. Zuckerberg, Meta’s chief executive, seemed to admit the issues on a conference call with investors after the release of the company’s earnings. In spite of the fact that “our route is apparent,” he said, “it seems that our way ahead is not quite clearly defined.”

However, he supported the company’s decision to go toward the metaverse, claiming that it has previously faced difficulties. The sustained success of Facebook, according to Mr. Zuckerberg, is dependent on the development of goods that people find value and that people want to use.

For years, Meta has worked to reduce its reliance on Apple, which controls the majority of iPhone users, as well as to distance itself from social networking scandals concerning disinformation and hate speech, which have plagued the industry. So Mr. Zuckerberg made an announcement in October, saying he intended for his firm to follow a different route toward the metaverse. During the intervening year, the firm has undergone a significant internal transition, reorganising itself and encouraging staff to join teams working on augmented reality and virtual reality projects.

At the same time, Meta’s enormously prosperous enterprises are going through a transitional era. When asked about Instagram’s video product Reels, Sheryl Sandberg, Meta’s chief operating officer, stated during an investor conference call Wednesday that the social media platform was extensively advertising it in order to compete with TikTok. However, although Reels is the most significant driver to Instagram’s growth, it does not generate as much revenue from advertisements as other Instagram products such as Stories and the main picture feed.

With a 36 percent profit rise and a 32 percent increase in sales in the final three months of 2021 compared to the same period the previous year, Alphabet, Google’s parent company, stated on Tuesday.

Despite this, the number of people using Meta’s social networking applications has continued to grow. Compared to the same period a year earlier, the number of monthly active users on Facebook, Instagram, WhatsApp, and other applications climbed by 9 percent, to 3.59 billion, according to the firm. Every week, more than one billion people communicate with business accounts using messaging apps such as WhatsApp and Messenger, according to the company’s estimates.

While certain areas continued to see growth, the main Facebook app looked to have reached a plateau in others; the app lost one million users worldwide for the first time in the quarter, a decrease from the previous quarter.

Meta also announced intentions to modify its stock ticker so that its shares will trade under the acronym META on the Nasdaq market rather than the symbol FB, as previously planned.

David Faber
David Faber
I am a Business Journalist of The National Era
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