What does Meta’s announcement that it lost $2.9 billion during its quarterly review say about where the company is going?
On April 22nd, 2022, Meta Platforms (formerly known as Facebook) released its performance results, and an interesting thing to note is that Reality Labs, which is the metaverse section of Meta, reported a loss of $2.9 billion dollars. What does this mean?
To comprehend this, we first need to understand what Meta is. Facebook changed its name to Meta in October 2021, a reference to the Metaverse. “The metaverse is the next evolution of social connection,” according to Meta’s website. “Our company’s vision is to help bring the metaverse to life, so we are changing our name to reflect our commitment to this future.” Metaverse core technologies include, but are not limited to, smart glasses, augmented reality, and virtual reality, which Meta is working on.
This rebrand is not the first of its kind, with Google also changing its parent company name to Alphabet. There are a number of reasons behind the rebranding to Meta, such as escaping the negativity that has plagued Facebook as a social media company over the years. Another reason, as mentioned by Mark Zuckerbeg, Meta/Facebook CEO, is that the rebrand will enable the company to focus on working on the Metaverse as opposed to Facebook’s previous services.
The $2.9 billion loss is a headline grabber as that could be seen as a major loss, but it is not unprecedented. In February 2022, Meta released the financial reports for the fourth quarter of 2022, and Reality Labs posed a loss of $3.3 billion. In building Zuckerberg’s vision, losses are somewhat commonplace. Reality Labs reported losses of over $10 billion in 2021 alone, following losses of $4.5 billion and $6.62 billion in 2019 and 2020, respectively. Revenue has also been steadily rising, from $501 million in 2019 to $2.27 billion in 2021.
All of these losses aren’t unexpected as Meta’s CFO, David Wehner, said that he expects the operating loss to “increase meaningfully” in 2022. Zuckerberg is taking this all in stride, saying that “It’s not going to be until those products really hit the market and scale in a meaningful way, and this market ends up being big, that this will be a big revenue or profit contributor to the business, This is laying the groundwork for what I expect to be a very exciting 2030.”
It is important to note that while the company name has been changed to Meta, there are still operations that are running under the company that have nothing to do with the Metaverse. There are multiple companies aiming to either build a metaverse or have good operations running in the space, with Decentraland, Microsoft, Apple, Nvidia, and other companies working to either create their own metaverse or create a product that aims to be a key enabler of such metaverses.
Meta as a company, apart from its Metaverse project has also seen hits taken. This stems from a whole variety of other factors such as its revenue generation falling, the number of daily active users fluctuating, and other factors. There have been positive signs with the introduction of “Reels” to Facebook and Instagram as a sign of potential revenue increase and an ability to challenge Tiktok.
While the reader is free to draw conclusions, this headline loss does not really say much about the direction that the metaverse being created by Meta is headed. Zuckerbeg admitted that he knows that Meta’s overall profitability is taking a hit in 2022 because of the investments made into its metaverse project, saying “I recognize it’s expensive to build this. It’s something that’s never been built before. “
Zuckerberg also said, “I’m just trying to lead the company in a way where we’re positioning ourselves as the premier company for building the future of social interaction and the Metaverse,” That message tallies with Wall Street seeing the Metaverse as an investment that could be worth trillions and Meta has recognised that and put themselves in a position to spend unlimited amounts of money on these projects, unlike its rivals like Epic Games or Roblox.
https://www.cnbc.com/2022/02/02/meta-reality-labs-reports-10-billion-loss.html (previous loss)