Meta shares tanked more than 22 percent on Thursday after third-quarter earnings results for Facebook’s parent company showed a 52-percent drop in profits. The company cited weak digital ad sales and a high cash burn rate in the so-called metaverse.
Once considered a Big Tech giant, Meta is no longer in the top 20 most valuable U.S. companies. Its market cap is worth less than Home Depot and slightly more than Pfizer and Coca-Cola as of this writing.
The big issue was Meta’s 19-percent surge in costs and expenses, which apparently took analysts by surprise, MarketWatch reported.
Mark Shmulik, an analyst from Bernstein, said his team was “incredibly frustrated to see expenses balloon with an almost total disregard for investor expectations.”
“Our old swim coach once crudely said, ‘The bad news is you suck, [and] the good news is you can only get better.’ There was some truth to those words, and perhaps the same holds true here,” Bernstein added.
The bad news comes as Meta continues to invest heavily in the metaverse, the 3-D virtual world that inspired its name change. Meta CEO Mark Zuckerberg has already spent $15 billion on his metaverse.
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Zuckerberg wanted his company’s identity to reflect a new project: an online social network called Horizon Worlds that looked like a video game. Instead of communicating through writing or by posting videos, people would move computer-generated characters around a digital world and speak to and interact with each other.
Zuckerberg called it the metaverse. Users who have tried Meta’s Horizon Worlds say it feels fake, they can’t find their friends, and none of the avatars have legs.
Other Big Tech names such as Alphabet and Microsoft have also been affected by inflation, Yahoo reported, but Meta stands apart. It changed its name a year ago, pivoting away from the core social media business that built it towards the metaverse and creating a logistical problem for itself.
“It’s almost like [Mark Zuckerberg] has walked away from the core business that’s historically made all the money,” said Needham analyst Laura Martin.
Facebook has a $269.42 billion market cap. Shares were trading at $98.21 at 9:30 a.m. EDT.