Mark Zuckerberg Experiences Backlash from Investors Due to Pricey Metaverse Proposal Failing to Impress
Meta, the tech giant formerly known as Facebook, has seen its losses soar in the July-September quarter, with expenses ballooning to $3.67 billion due to its ambitious investments in the metaverse. However, the public's enthusiasm for virtual reality headsets and 360-degree videos appears to be lacking, raising concerns among investors.
In an open letter, Altimeter Capital Management urged Meta's CEO, Mark Zuckerberg, to reconsider the company's costly and capital-intensive metaverse strategy. Zuckerberg, however, remains steadfast in his vision of the metaverse as the future frontier of digital interaction and computing. He believes that the metaverse, along with artificial intelligence (AI), will be critical to Meta's long-term growth.
Meta has poured billions into the metaverse concept, betting on immersive, interconnected virtual environments as the next major computing platform. This includes a significant investment in AI, as evidenced by a $10 billion, six-year deal with Google Cloud to support AI and data center needs.
However, investors are worried about the high risks associated with the immature technology, massive costs, slow or uncertain user adoption, unclear governance, and potential privacy issues. The metaverse has yet to generate substantial returns at scale, and some view Meta's investments as aging poorly.
Other concerns include Zuckerberg's personal stock sales following strong earnings, which some interpret as potentially signalling reduced confidence. However, the overall stock performance remains positive.
Despite these doubts, Meta remains highly profitable overall, with strong revenue growth driven by its existing social media platforms. The company has announced several new initiatives, including a virtual and mixed reality headset called Quest Pro, priced at $1,500, and a social metaverse platform for avatar use.
However, the new device has been criticised as an expensive toy, and Meta's stock price dropped 20% after posting four straight quarterly earnings decreases, wiping off $67 billion from its market price.
Experts have called Meta's investments "confusing and confounding," and its inability to reduce expenses "troubling." Paolo Pescatore, an expert at PP Foresight, stated that the metaverse feels like a "one large wager given the recession" and the journey will be "lengthy and unpleasant."
Altimeter Capital Management recommended Meta to cap yearly investments in the metaverse to $5 billion instead of the existing $10 billion. Meta expects running losses at Truth Labs, the system responsible for the metaverse, to grow substantially next year.
As Meta continues to invest heavily in the metaverse, Wall Street is losing patience. One investor called the company's investments "super-sized and distressing." Meta is buying two locations: enhanced truth and neural interfaces, but it remains to be seen whether these investments will pay off.
In the third quarter, Meta's headcount rose 32 percent from the end of the second, indicating a continued commitment to the metaverse project. However, the company's revenue at Truth Labs almost halved in the same quarter.
As Meta navigates the challenges of the metaverse, it faces a critical juncture. The company must balance its ambitious vision with the realities of the market and the concerns of its investors. Only time will tell whether Zuckerberg's bet on the metaverse will pay off.
[1] https://www.wsj.com/articles/meta-facebook-earnings-metaverse-investments-mark-zuckerberg-11664486453 [2] https://www.cnbc.com/2022/10/26/meta-facebook-stock-falls-after-earnings-miss-and-warning-on-metaverse-revenue.html [3] https://www.reuters.com/technology/meta-sees-revenue-halve-at-truth-labs-metaverse-unit-2022-10-26/ [4] https://www.bloombergquint.com/onweb/meta-invests-in-ai-to-build-metaverse-and-compete-with-google-alibaba [5] https://www.cnbc.com/2022/10/26/meta-facebook-stock-falls-after-earnings-miss-and-warning-on-metaverse-revenue.html
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