Shares in Facebook parent company Meta Platforms (META) are getting hyped as the tech company spends money to make virtual reality hardware, raise awareness and find future friends in the metaverse.
As the company restructures costs amid macroeconomic challenges, its clients’ ad budgets are tightening — leading even one upbeat analyst to call Meta Platforms’ third quarter a “make-or-break”.
“I think the stock is back to questions around core fundamentals,” AB Bernstein senior analyst Mark Shmulik told Yahoo Finance. “One can understand that that is [the metaverse] like a longer term initiative. I think investors would love it if they spent a lot less. “
Advertisers tend to run digital campaigns where the greatest audiences, targeting capabilities and conversion rates are — Meta subsidiaries Facebook and Instagram have been such venues for a decade. Business budgets during a time of macroeconomic uncertainty make it even more important to experience the value of ad spend through realized sales.
“The macro environment continues to deteriorate. We think many ad-driven companies will miss out on earnings in the fourth quarter,” Needham senior analyst Laura Martin told Yahoo Finance. “In terms of Meta, not only is the macro environment worse, but they” TikTok are losing a lot of money user time. This continues to happen. “
According to research conducted by Piper Sandler, TikTok is the most popular social media app for teens, and ByteDance-owned companies have only expanded their profits compared to Facebook and Instagram.
“I think Mark Zuckerberg is telling us he doesn’t think he has a core business,” Martin said. “He’s moving to Reels because it competes with TikTok. He’s moving to the Metaverse, and he’s changing the name of the company, which tells me that he thinks the core business he built 15 years ago isn’t actually a business anymore .”
Finding legs in a virtual world
Facebook spent $10 billion on early efforts to build Metaverse in 2021, and Mark Zuckerberg informed shareholders in 2022 that the company would continue to spend heavily to create Metaverse and would lose it in three to five years funds.
Big Bets may be overly reliant on Meta’s ability to sell virtual world experience hardware and its raison d’être.
“If you look at the motivation behind it, we’ve gone through these changes from desktop to mobile in the past,” Shmulik said, “so they [Meta] Understand that at some point, there will be another computing platform change. They don’t want to be stuck at the application layer. “
At Meta Connect, Facebook founder and CEO Mark Zuckerberg unveiled a $1,500 VR headset, with the general plan that a familiar suite of workplace collaboration apps could kick off virtual worlds participate.
Accenture, Zoom and Microsoft have also announced Metaverse partnerships with the Meta platform. Microsoft has provided an important friend in virtual reality, promising to bring its productivity tools and gaming cloud technology to the experience.
“I think what he’s talking about in terms of changing the world of computing for consumers is really innovative and interesting and risky, but having the CEOs of Microsoft and Accenture in yesterday? Great – to say he has some great Great corporate partner,” Martin said. “And I don’t think consumers are willing to pay $1,500. I think that’s the exception. But I think Accenture could pay thousands of dollars for $1,500 goggles.”
Brad Smith is an anchor for Yahoo Finance.follow him on twitter @thebradsmith.
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