(Bloomberg) – Meta Platforms Inc. CEO Mark Zuckerberg has asked investors to be patient with the social network’s massive investments in unproven bets at a time of capital. already challenging for digital advertising agencies.
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The company’s shares fell more than 20% in late trading after it gave a disappointing quarterly revenue outlook. In a call Wednesday, Zuckerberg sought to justify Meta’s inflated costs to fund the version of virtual reality, the metaverse, as well as the artificial intelligence driving major changes to the social network. its.
Investors, who have dropped 61% of the stock this year, have yet to buy it. Zuckerberg said he’s confident that Meta’s biggest bets in areas like short-form video, business messaging and the metaverse are on track — he just can’t say for sure how big the bounty will be. .
“I think we’ll address each of these issues in different periods of time,” Zuckerberg said. “And I appreciate patience and I think that those who are patient and invest with us will eventually pay off.”
It proved to be a tough sale as the company expected its already declining capital revenues to be lower than analysts expected and expenses to be higher. On Wednesday, Meta said third-quarter revenue fell 4.5% from a year ago, which is only the second time the company’s sales have fallen — the first being the previous quarter. In the last three months of the year, Meta expects that trend to continue. The company’s fourth-quarter forecast came in at a low level compared to analysts’ expectations.
Meta currently projects total costs for this year to be $85 billion to $87 billion. By 2023, that number will grow to a projected $96 billion to $101 billion, the company said on Wednesday.
Read more: Meta drops as Sales Forecast reveals ad market weakness
Meta has struggled with both shrinking marketer spending due to economic uncertainty and a change in Apple Inc’s privacy policy. making all social media ads less effective. The company has cut costs by slowing hiring and narrowing priorities to focus on keeping its social media platforms relevant and expanding its virtual reality offerings.
The company, which changed its name from Facebook to Meta a year ago, is also betting big on hyper-reality hubs that Zuckerberg thinks will host the future of work and media. This effort is losing Meta billions and the company expects more losses on the supermarket business next year.
Meta isn’t the only internet company suffering from a weak advertising market; both Alphabet Inc. and Snap Inc. are all affected by the same lackluster results. It is the only company that is overhauling the way social media platforms work while spending about a tenth of the dollars it generates in sales on a virtual future that is still years away.
Over the past year, Meta has changed the experience of Facebook and Instagram to show more algorithmically selected content and fewer posts from the people users follow. It also prioritized short-form videos, called Reels, in response to ByteDance Ltd.’s popular TikTok app, which won over users’ time and familiarized themselves with an interest-based vertical video feed. specific likes.
Meta’s legacy social media products need to be popular enough to generate the ad revenue that will fund Zuckerberg’s super-reverse vision. In Q3, people spent 4% more time on the Meta platform each day, compared with the same period last year, with 2.93 billion daily active users. Monthly, the tech giant has seen 3.71 billion active users for its line of apps, which includes Messenger and WhatsApp.
On Wednesday, the company advertised that Instagram had passed 2 billion monthly active users and said these people are spending more time watching Reels – and marketers are spending on advertising. there, with an implied revenue of $3 billion a year. But Reels is pulling in revenue, hitting $500 million in recent quarters, as newer products cannibalize other monetization ad spaces at a faster rate. Zuckerberg said it could be up to 18 months before that changes.
“How investors are feeling right now is that there are too many test bets versus proven bets in the core,” said Brent Thill, an analyst at Jefferies LLC. , an analyst at Jefferies LLC, said during the earnings call with Meta executives.
Zuckerberg has asked for patience before. In 2015, investor questions focused on when WhatsApp, Instagram and Messenger will make money. The difference then is that those apps already have hundreds of millions of users each.
“Meta needs to turn its business around,” said Debra Aho Williamson, analyst at Insider Intelligence. “As Facebook Inc., it is a revolutionary company that has changed the way people communicate and the way marketers interact with consumers. Today, it is no longer a creative breakthrough. “
(Updates with details from the income statement starting in the fifth paragraph.)
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