After trading hours on Wednesday, shares of Meta, Facebook’s parent company Meta plunged more than 22% as the company reported lower-than-expected profits for the fourth quarter 2021. Reality Labs is the division of the company that works on developing and building the Metaverse. However, Meta earned $2.2 billion from the project.
Meta, which almost all its revenue comes from advertising, reported $10.3 Billion in profits in the quarter ended March 2021. This is down from $11.2 Billion in 2020. Each share generated a profit at $3.67. This is a drop of 5% over a year, and lower than market expectations of $3.84 per share. Meta traded at $323 per share on Wednesday when the market closed. However, it quickly dropped to below $250 per share.
On Wednesday’s call with investors, Zuckerberg stated that people have many options for how they spend their time. Apps like TikTok are rapidly growing and that there are many ways to do it. Reels, which are short form videos Meta has been pushing across Facebook to counter the growth of TikTok, monetize at a lower rate that other advertising venues like the Facebook News Feed.
Zuckerberg stated that Reels is the fastest-growing content type on Instagram and Facebook. As Reels competes with TikTok for attention, Zuckerberg said that Meta will continue to invest.
The number of daily active Facebook users fell slightly in the last quarter. This is the first quarter that daily active users have declined from 1.93 billion to 1.929.
Zuckerberg stated that TikTok has grown at a rapid pace and is positioned as a strong competitor. Zuckerberg also advised patience in the transition to prioritizing younger users, short-form video content consumption and added that advertising money would catch up.
Zuckerberg stated that video has historically been more difficult to monetize. However, he believes that short-form video overtime will monetize better like Stories and Feeds than like Watch.
Although Meta does not provide Instagram’s daily active user, daily active users across its suite increased slightly to 2.82 million in the quarter.
The company was profitable despite spending more than $10 billion on the Metaverse by 2021, with very little in return. Meta reached $100 billion in annual revenue in 2021 and earned over $46 billion profit.
Zuckerberg predicted last year that Meta would spend $10 billion to build the Metaverse. He also said that by the end 2021, a billion people will be playing virtual games in virtual worlds. The company spent $3.3 Billion on Reality Labs in the last quarter of 2021.
Zuckerberg stated that users have spent over $1 billion on virtual reality content through the Oculus Store in the past year. He also said that Meta will release a “higher-end virtual reality headset” later this year.
Zuckerberg stated that “we are focusing on the foundational software and hardware that are required for building an immersive, embodied Internet that enables better social experiences than any that exists today.” “Last year was all about setting a goal for where we are going, and this year will be about execution.”
Meta stated that it will face more obstacles in 2022 as it tries to build the Metaverse, compete with TikTok and win users on mobile phones. The company forecasts that total revenue for the first quarter 2022 will be between $27 billion and $29 billion. This is an increase of 3-1%.
Meta stated that, in addition to the challenges it faces from TikTok, it will continue to feel effects of Apple’s iOS 15 privacy change. This gives users the option to prevent companies from selling or collecting their data. Meta stated that the privacy changes made by Apple last summer will be in effect for the first quarter 2022, while the iOS changes did not take effect for the 2021 period.
Meta stated that lower revenue in the next quarter could also be due to inflation and disruptions in supply chains, which have had an impact on advertisers’ budgets.
Haris Anwar (senior analyst at Investing.com) stated that certain companies are facing supply-chain disruptions. “There are many headwinds in the Meta case that are growing at the same pace. The company is facing the effects of Apple’s privacy settings and supply chain disruptions. Inflation is also a problem for many businesses who are forced to spend less digital advertising.