Meta Stock Craters to 6-Year Low Following Disastrous Q3 Earnings
Metaverse-related losses are ballooning, with the division posting a quarterly loss of $3.7 billion, compared to $2.6 billion last year.
In 2021, with the social media firm embroiled in numerous scandals surrounding misinformation on the platform, company founder and CEO Mark Zuckerberg decided to rebrand Facebook to Meta Platforms (NASDAQ: META).
In addition to trying to distance themselves from criticism, the new name revealed the company’s new focus: developing the “Metaverse.” However, following the release of Meta’s disastrous Q3 earnings this week, it appears the big tech firm has a whole new set of big problems, as shares of META plummeted to a six-year low.
Put simply, the Metaverse is virtual reality. Users can build custom “worlds” that others can visit. These worlds can be used for everything from socializing and gaming to running digital businesses and even digital concerts or sporting events.
Unfortunately for Meta Platforms, there’s nothing particularly groundbreaking about their Metaverse. Socializing and gaming in virtual reality have been around for years in the forms of Second Life and Roblox, respectively. Sporting events and concerts can be watched on TV or the internet.
Whether virtual reality-based businesses are something the world needs or even wants is doubtful, given that internal documents and communications indicate that virtually (pun intended), nobody is actually using the Metaverse for fun, much less spending money at virtual businesses.
Despite the project being considered an abject failure by most observers and costing the company $9.4 billion in the first three quarters of 2022, Mark Zuckerberg appears set on staying the course, with billions more earmarked over the coming quarters.
The Metaverse debacle is happening at the same time that the company’s profitable division, Facebook, is suffering from reduced advertising revenues as companies reduce their marketing budgets in anticipation of a coming recession.
These factors combined to produce disappointing earnings. Quarterly revenue was down 4% YoY, while spending was up 19%, resulting in net income plummeting by 52% from last year. Metaverse-related losses are ballooning; the division lost $3.7 billion in the quarter, compared to $2.6 billion last year and an average of $2.9 billion over the first two quarters of 2022.
Predictably, investors punished Meta’s stock in a big way. The day after the earnings report was published, the share price fell by almost 25%. With future Metaverse losses guaranteed and Facebook revenue suffering from the macro environment, there’s not much stopping the stock from falling even further.
On the valuation front, the company now sports a P/E under 10. Such a low P/E for a tech stock used to be considered a bargain, but perhaps not in this environment and with the Metaverse anchor weighing them down. Only investors with a high-risk tolerance and a firm belief in the future viability of the Metaverse should consider this stock. Otherwise, it might be a good idea to steer clear of META stock for the time being.
Shares of Meta last traded at $99.33 per share, up 1.42% on the day. YTD, META stock is down 70.66%.
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