reported second-quarter earnings late Wednesday that were dismal enough to add to the headwinds stocks were facing on Thursday. But the company’s large losses in one key segment—the metaverse—shouldn’t obscure that Wall Street remains upbeat on the company’s prospects in that high-growth business.
Meta (ticker: META) reported a second-quarter per-share profit of $2.46 from revenue of $28.8 billion, which was down from $29.1 billion in the same quarter of 2021, representing the company’s first-ever quarterly decline in sales. Wall Street had been expecting a per-share profit of $2.56 from revenue of $29 billion.
The forecast was even worse.Meta expects revenue of between $26 billion and $28.5 billion in the third quarter, while analysts’ consensus forecast was for a figure near $31 billion.
Shares in the social-media giant behind Facebook, Instagram, and WhatsApp slumped 4% in U.S. premarket trading on Thursday. Investors have soured on the stock, reflecting the challenges Meta faces from a difficult advertising environment—including the effects of
(AAPL) privacy push for iPhone users and competition from TikTok and others.
On the surface, a hefty loss in Meta’s Reality Labs segment—which is focused on augmented reality (AR) and virtual reality (VR) hardware, software, and content—looks like just one more thing to complain about in the company’s earnings. But that business is special: The division is at the heart of the group’s push to reinvent itself around the metaverse, which describes a future vision of the internet built on virtual worlds.
Analysts remain optimistic about growth in that area.
Reality Labs recorded an operating loss of $2.8 billion in the three months to the end of June—wider than the $2.4 billion loss a year ago but down slightly from the $3 billion loss in the first three months of the year. Revenue of $452 million was up from $305 million in the same period a year prior, but down from $695 million in the first quarter of 2022.
“The metaverse is a massive opportunity,” CEO Mark Zuckerberg said on the company’s earnings call. “I feel even more strongly now that developing these platforms will unlock hundreds of billions of dollars, if not trillions, over time.”
“This is obviously a very expensive undertaking over the next several years,” the CEO added, but Wall Street seems to be taking Zuckerberg at his word that expensive growth now promises plentiful future profits.
“We believe Meta will continue to benefit from the long-term digital ad trend, participate in accelerated digital transformation, and innovate in the metaverse,” Brian White, an analyst at Monness, Crespi, Hardt & Co., said in a note, trimming his price target on Meta to $230 from $250. While fear of a recession, regulatory headwinds, and market turmoil persist, White sees Meta as positioning itself to exit the downturn in a stronger position.
Youssef Squali, an analyst at Truist Securities, was even more upbeat, viewing the company’s pivot to the metaverse as part of a series of successful reinventions, such as its focus on mobile in 2012 and social media stories in 2017.
“Meta should be able to reinvent itself through product innovation leveraging its massive scale and BS to reposition itself as a major player in the fast growing SF video, while further building commerce & metaverse as key pillars to engage younger audiences and re-accelerate growth in 2023,” Squali wrote in a note.
Meta’s metaverse is also getting attention from the cryptocurrency industry. Analysts see significant potential for the use of digital tokens in virtual worlds, with cryptos being used for payment for digital goods and services.
“The metaverse is a major economic opportunity, and we will keep an eye on the currencies and assets that may form a part of it in the future,” Mike Crosbie, the chief business officer at crypto payments group Poundtoken, wrote in a note.
“We are keeping a particularly close eye on Meta Pay, and how it aims to be a wallet for the metaverse,” Crosbie added. “In time, Meta will need to address which currencies will be adopted, and how customers who use them will be protected.”
Crosbie noted that the earnings call made no comment on which currencies Meta Pay will support, and that Meta discontinued its own digital wallet, Novi, last year. Uncertainty over how Meta will handle cryptocurrencies may diminish as the metaverse develops, he said.
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