Meta’s profit slides by more than 50% as challenges mount

A year ago, Mark Zuckerberg changed Facebook’s name to Meta and said he was going all in on the immersive digital world of the so-called metaverse.

Since then, Meta has plowed billions of dollars into, and restructured itself around, the emerging technology — just as the global economy has slowed, inflation has soared and investors have begun paying more attention to costs.

The combination has been nothing short of disastrous. This year, Meta’s earnings have been hit hard by its spending on the metaverse and its slowing growth in social networking and digital advertising. In July, the Silicon Valley company posted its first sales decline as a public company. Its stock has plunged more than 60% this year.

On Wednesday, Meta continued that trajectory and indicated that the decline would not end anytime soon. It said it would be “making significant changes across the board to operate more efficiently,” including by shrinking some teams and by hiring only in its areas of highest priority.

The company reported a 4% drop in revenue for its third quarter — to $27.7 billion, from $29 billion a year earlier. Net income was $4.4 billion, down 52% from a year earlier. Spending soared by 19%.

The company’s metaverse investments remained troubled. Meta said its Reality Labs division, which is responsible for the virtual reality and augmented reality efforts that are central to the metaverse, had lost $3.7 billion compared with $2.6 billion a year earlier. It said operating losses for the division would grow “significantly” next year.

For the current quarter, Meta forecast revenue of $30 billion to $32.5 billion, which would be down from a year ago. The company’s shares fell nearly 20% in after-hours trading.

Zuckerberg has had trouble getting even his own employees to buy into his metaverse vision. The company’s new focus has been confusing, employees have said, with disagreements between executives, frequent strategy shifts and a little-used flagship virtual reality game, Horizon Worlds.

Zuckerberg was defiant on a call with analysts Wednesday. He said people would “look back decades from now” and “talk about the importance of the work that was done here” regarding the metaverse, virtual reality and augmented reality.

“Look, I get that a lot of people might disagree with this investment,” he said. “But from what I can tell, I think this is going to be a very important thing and I think it would be a mistake for us to not focus on any of these areas, which I think are going to be fundamentally important to the future.”

It’s unclear how Meta’s metaverse investment will pan out given low user numbers, said Mike Proulx, a research director at Forrester, even as the company cedes young users to rivals like TikTok.

“It truly warrants a conversation around what is Meta’s core business at present,” he said.

Despite the challenges, Meta increased its numbers of users. The number of people who use its apps such as Facebook, Instagram, WhatsApp or Messenger daily increased to 2.93 billion users in the quarter, up 4% from a year earlier.

On Wednesday’s earnings call, Zuckerberg praised the user growth for Facebook and WhatsApp and talked about how people were spending more time on Instagram’s Reels. But he spent much of the call focused on his vision for the metaverse.

“It’s just not clear, if we weren’t driving this forward that anyone else would be,” he said.