Home » Meta – Metaverse has a lot to live up to as ad revenues unwind
Third quarter revenue fell 4% to $27.7bn, with the vast majority of this stemming from weaker advertising revenue. The average price-per-ad fell 18% compared to last year
An average of 2.93bn people used the group’s platforms including Facebook, Instagram and WhatsApp every day throughout the quarter, which was 4% up on last year
Total costs and expenses rose from $18.6bn to $22.1bn, largely reflecting higher research and development spending. As such, operating profit fell 45.7% to $5.6bn
In the final quarter, the group expects total revenue to be $30 – $32.5bn. Meta’s also making significant changes to boost efficiency, this will include an “estimated $900 million in additional charges related to consolidating” its office footprint
Meta shares fell 8.8% in after-hours trading
Sophie Lund-Yates, Lead Equity Analyst at Hargreaves Lansdown:
“Meta’s platforms don’t hold as much sway with marketing teams as they need to. This isn’t the first time the social media giant has lagged, and that reflects the fact that competition is fierce, with younger entrants like TikTok a serious opponent. In such uncertain and difficult times, all the big names are struggling, but Meta’s inability to keep hold of its customers’ share of wallet is concerning, and keeping punters is coming at the expense of slashing prices.
The potentially finite nature of advertising as a revenue stream isn’t lost on management, and that’s where the grand metaverse plans come in. Unfortunately, the roll out and take up of the group’s virtual reality products leaves a lot to be desired, despite the seemingly never-ending upwards spiral of the research and development budget. This is problematic because Meta doesn’t have other income streams to fall back on, so as it stands, when advertisers turn off the tap, Meta’s revenue funnel runs dry very quickly. Efforts to supercharge efficiency plans hint at the difficult conditions ahead, although activists will be saddened to hear these plans don’t stretch to headcount reductions in the current budget.
There will be some that say the 62% year-to-date drop in Meta’s share price has gone too far, and it’s true the tech giant still holds enormous scale thanks to its billions of active users. That alone means it can’t be immediately written off, and there is potential for growth to return. The issue is the economic moat that separates Facebook and Instagram from its rivals is getting narrower, without a clear path forwards for further successful monetisation of its other apps and products, and that could culminate in a very big problem very quickly.”