Sunday, March 26

Meta shares fall over 20% as metaverse-focused division reports loss of $10.2 billion

The share price of Meta is currently down over 20% in pre-market skirmish as the firm’s Q4 2021 earnings report, revealed a loss of $10.2 billion on its newly created Facebook Reality Labs (FRL) division, which comprises its augmented and virtual reality operations.

In Q3 2021, Meta announced it would be breaking out results for its new division for the first time to show the performance and investments in a group that it considers key to the next generation of online social experiences. Due to Mark Zuckerberg’s belief, the company went ahead to change its name from Facebook to Meta Platforms in October to emphasize the importance of the metaverse to its future.

The report reveals that the new division generated $2.27 billion in revenue in 2021, which represents 1.96% of the $116 billion generated from Meta’s family of apps, which include Facebook, Instagram and WhatsApp. Also, in Q4, FRL reported a loss of $3.3 billion on revenue of $877 million. That was up from a loss of $2.6 billion on revenue of $558 million in the third quarter.

What you should know

  • Meta previously estimated FRL would reduce its overall operating profit by about $10 billion in 2021, and said it was committed to spending even more on the division for the next several years.
  • Overall, Meta reported adjusted Q4 earnings per share of $3.67, falling short of the consensus analyst estimate of $3.85, according to FactSet, while revenue of $33.7 billion was just ahead of the consensus estimate of $33.4 billion. Meta’s guidance for first-quarter 2022 revenue also fell short, coming in at between $27 billion to $29 billion, compared with analysts’ expectations of $30.2 billion.
  • The earnings follow Meta’s announcement that it has axed its Diem stablecoin project, selling the project’s assets and operations to Silvergate for $182 million in total.
  • On the earnings call, Meta CEO, Mark Zuckerberg said the company’s metaverse developments include releasing a high-end virtual reality headset by the end of the year. Zuckerberg stated that Meta is also continuing to work on “Nazare,” the company’s first fully augmented reality glasses.
  • The company also mentioned on the call that it expects the new division’s operating loss to “increase meaningfully” in 2022.

Facebook’s CFO explained that in 2022, the firm does not expect to spend so much in capital expenditure for the new division. He explained this in the CFO’s outlook commentary section stating, “While our Reality Labs products and services may require more infrastructure capacity in the future, they do not require substantial capacity today and, as a result, are not a significant driver of 2022 capital expenditures.”