Market Story: No king rules forever - Facebook

Meta platforms (former Facebook) shares belonging to Mark Zuckerberg fell sharply on Thursday after the company published disappointing financial results. The company's stock plunged over 20% and fall to levels not seen since 2016. What caused the sudden deterioration of the company's results?

Results highlights

Net profit in the third quarter dropped by 52% to USD 4.4 billion, well below analysts consensus of USD 5 billion. Revenues plunged by 4% to USD 27.71 billion, still below markets estimates of 5.0%, which is the slowest growth rate since market debut in 2012, after a decline of 1% that took place in the previous quarter.

Zuckerberg, Meta's largest shareholder, lost nearly $ 77 billion this year, because most of his wealth consists of the company's stock. According to Bloomberg's data, at the beginning of 2022, the value of his assets jumped over $125 billioN, but after the recent sell-off this number fell to $49 billion .

The company expects Q4 revenues will reach a level between $ 30 billion to $ 32.5 billion, below analysts expectations of $ 32.2 billion.

Metaverse more detached from reality than you might expect

Business in the metaverse is doing quite poorly despite a novel-sounding concept that may even be perceived by investors as 'too good to be true'. Reality Labs revenue declined to $ 285 million, almost halved from Q3 2021. The loss increases to USD 3.67 billion, from USD 2.63 billion in Q3 2021. Another risk factor concerns the sale of VR headsets and Metaverse software. Analysts are considering a possible slowdown in the face of a global downturn and lower consumer spending. Microsoft pointed to a decline in demand for personal computers, and semiconductor manufacturers Intel and AMD also informed about a possible 'recession' in the technology market. This slowdown may also affect the sale of Oculus devices, which puts the company in an even more difficult situation. What's more, the company announced that "Reality Labs operating losses in 2023 will grow significantly year on year (...) after 2023, we expect Reality Labs investment to pace so that we can achieve our goal of increasing the company's total operating income in the long run ".

"Maybe we have poor results, but others did not perform better. And besides, it's all Apple's fault "

Concerns over recession and growing inflation had a negative impact on Meta and other technology companies. Google owner Alphabet, and Microsoft also disappointed investors with the results for the third quarter. In addition, the Meta struggled with changes in the Apple Privacy Policy adopted in 2021, which hit its basic advertising model. The company claims that, for this reason, advertising revenue fell by $ 10 billion in 2022. A positive aspect for the company may be the fact that the number of users of the most important Facebook and Instagram platforms are constantly growing and allows them to keep their place in the TOP5 of the most visited social platforms in the world (Facebook remains the most popular, Instagram in 4th place). Meta indicated that it recorded 197 million daily active users in the USA and Canada, which is an increase of 1 million compared to the third quarter of 2021. Most revenues are still drawn from North America users. In the face of growing recession fears, the advertising market may experience a significant slowdown, which already took place during the worst time of pandemic.

Unreal reality

Mark Zuckerbreg informed already in 2021 that the company intends to undergo a 'painful' and risky transformation in order to change from a social platform into a technological hub of Metaverse virtual worlds in the long term, which entailed a change of the company's name. Meta Platforms has dominated the current VR market with Oculus devices highly rated by users. The 'Metaverse' also has a chance to materialize, but it seems that a potential recession could significantly delay the process.