• Markets and investors are increasingly worried that Meta spending is out of control
• It’s lost 62% of its value so far this year
• Metaverse may make money in a decade or so. Or it may not, but…
• Mark Zuckerberg knows best. He’s in complete charge, and that’s the problem

Just in time for Halloween, Meta (the company formerly known as Facebook) is seriously spooking the markets, Wall Street and its investors. Yesterday, they responded by sending Mark (Hubris is my middle name) Zuckerberg a metamessage. It’s very much to the point: Stop spending billions on your metaverse project, concentrate on your core business and focus relentlessly on stemming “supersized and terrifying losses”.

Meta is falling rapidly into institutional and public disfavour and investors are dumping stock after its share price plummeted when news broke yesterday that Reality Labs, the division charged with conjuring the metaverse into existence, (“Make it so”, read the message from on high) lost $3.7bn in Q3. Yes, that’s three thousand seven hundred million bucks gone between July and September. In total so far this year, Reality Labs has lost $9.4bn. The company also announced that the losses “will grow significantly year over year” during 2023, even as yesterday’s earnings statement disclosed Meta’s fourth consecutive decline in quarterly profits.

During a required ‘earnings call’ that followed the release of the awful new figures, investors and analysts queued up to take Zuckerberg to task and demanded to know the reasoning behind his determination to continue to call “experimental bets”. Little Mark was unrepentant. He said: “Over time, these are going to end up being very important investments for the future of our business. This is some of the most historic work we’re doing. People are going to look back decades from now and talk about the importance of the work that was done here.” The market believed otherwise and Meta shares tanked by 19.4% in after-hours trading.

In February this year, Meta recorded the biggest stock price collapse in US history when $230bn was wiped off its market value. That debacle was responsible for getting on for half of the half a trillion dollars the company has lost so far in 2022. The metamess is even worse today after another $67bn of value was wiped off the books yesterday.

The company’s share price is down 62% since 1 January this year. Meanwhile, costs and expenses have risen by 19% on Q3 last year to $22.1bn, operating margin has declined by 20% from 36%, and operating income has fallen by 46% to $5.66bn. Analysts called Meta’s metaverse strategy "confusing and confounding" and said management’s apparent inability – or bull-headed refusal – to cut costs and reduce expenses is "extremely disturbing".

Adding further to the company’s woes are outside factors, such the new privacy policies Apple introduced in 2021, that have had a considerable impact on Meta’s income from its main advertising platform, and caused it to write down some $10bn of the ad revenues it had expected to make this year. Also hitting Meta where it hurts is rapidly intensifying competition from TikTok and growing concerns that the US and other countries will move properly to impose and police much stronger regulations on big tech companies. Lastly, there is the overarching worry that there will soon be a global recession.

So far, Mark Zuckerberg’s reactions to demand for change have gone no further than promising to “consolidate” some office properties and, until the end of next year, holding “some teams flat in terms of headcount, shrinking others and investing headcount growth only in our highest priorities”. Some team budgets will also be trimmed.

The markets are not impressed by such a minimalist approach. For example, Altimeter Capital Management, which invests in Meta, called on Zuckerberg to show he is serious about reducing costs by capping annual investments in metaverse developments to $5bn a year rather than the current $10bn.

At root the trouble is that Mark Zuckerberg, as the founder, chairman and CEO of Meta, has absolute control over the company. Sheryl Sandberg has left, a voice of reason and the person who kept her gimlet eye on the revenues and profitability flowing from Meta’s core advertising platform and carefully nurtured the virtual goose that lays the pots of gold.

So now, if he doesn't feel like it, Zuckerberg doesn’t have to listen to anyone but his inner genius and the sole sanction shareholders actually have is to sell up and get out. Zuckerberg reckons it will take 10 years for the metaverse to start to pay off. “I think that those who are patient and invest with us will end up being rewarded,” he said. The trillions-of-dollars question is whether or not the investors and market will put up with the promise of “jam tomorrow” and keep their stakes for a distant dividend. The odds are shortening that they won’t.

For example, Paolo Pescatore, a senior analyst at PP Foresight, said: “The metaverse feels like one big gamble given the economic crisis," adding that the way ahead for Meta will be “long and painful”. 

Meanwhile, Brent Thill, an analyst at Jeffries, commented that as far as Meta is concerned:  “There are just too many experimental bets versus proven bets on the core.”

The last word goes to the principal analyst at Insider Intelligence, Debra Aho Williamson. She hit the nail on the head when she said: “To return to stronger growth, Meta needs to turn its business around. It would benefit from less priority on the metaverse and more on fixing its core business.” She added: “Meta is on shaky legs when it comes to the current state of its business.”

That’s as ironic as it is amusing when one considers that the wonderful world of Zuckerberg’s virtual paradise, as experienced by the few people who have been allowed to strap on an expensive VR headset and enter Nirvana for a while, have found it severely underwhelming, not least because the avatars populating the metaverse literally have no legs. The software and bandwidth can’t cope with the rendering so your perfect self is just a protoplasmic legless blob floating around in a virtual soup. Sounds like how my dinner looks.

As things stand right now, just before Halloween 2022, it’s impossible to tell if the metaverse will be a trick or a treat.