Facebook parent Meta Platforms (META) shares are being boiled as the tech company spends to make virtual reality hardware, raise awareness and make friends for a future in the metaverse.
Its clients’ advertising budgets are tightening as companies restructure their costs amid macroeconomic challenges – leading even one optimistic analyst to say Q3 is “all or nothing” for meta-platforms.
“I think the stock is back on issues around core fundamentals,” AB Bernstein senior analyst Mark Shmulik told Yahoo Finance. “People can understand that this is the case [the metaverse] like a longer-term initiative. I imagine investors would love it if they spent a lot less on it.”
Advertisers typically run digital marketing campaigns where the largest audiences, targeting opportunities, and conversion rates are — meta affiliates Facebook and Instagram have been that place for a decade. Corporate budgeting during macroeconomic uncertainty makes it even more important to know the value of advertising spend through realized sales.
“The macroeconomic environment continues to deteriorate. We believe many advertising-driven companies will miss out on fourth-quarter earnings,” Needham senior analyst Laura Martin told Yahoo Finance. “And in the case of Meta, not only is the macro environment deteriorating, but they are losing a lot of user time to TikTok. And that keeps happening.”
According to a study conducted by Piper Sandler, TikTok is the most popular social media app among teenagers, and the margin has only widened for the Bytedance-owned company 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 going to the metaverse and he’s changed the name of that company, which tells me he no longer believes the core business he built 15 years ago is actually a business.”
Find Legs in the Metaverse
Facebook spent $10 billion on early efforts to build the metaverse in 2021, and Mark Zuckerberg informed shareholders in 2022 that the company will continue to spend big on creating the metaverse, losing money for three to five years becomes.
The big bet may have an over-reliance on Meta’s ability to sell Metaverse Experimental hardware and a reason to be there.
“If you look at the rationale behind it, we’ve gone through these changes from desktop to mobile in the past,” Shmulik said. “And so her [Meta] understand that at some point there will be another change in computing platform. You don’t want to get stuck in the application layer.”
At Meta Connect, Facebook Founder and CEO Mark Zuckerberg unveiled a $1,500 VR headset, with the prevailing plan that a set of familiar workplace collaboration apps could boost engagement in the Metaverse.
Accenture, Zoom and Microsoft also announced a Metaverse partnership with Meta platforms. Microsoft offers a significant friend in virtual reality with a commitment to bring its productivity tools and gaming cloud technology to the experience.
“I think what he’s talking about in terms of changing the computing world for consumers is really innovative, interesting and risky, but getting the CEO of Microsoft and Accenture yesterday? Great – says he has some great corporate partners,” Martin said. “And I don’t think consumers want to pay $1,500. I think this is the exception. But I think Accenture can pay to buy thousands of $1,500 glasses.”
Brad Smith is an anchor at Yahoo Finance. Follow him on Twitter @thebradsmith.
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