Zuckerberg’s Metaverse dream, the capital market does not pay

The performance fell short of expectations, and the stock price plummeted. How long can Zuckerberg support the Metaverse?

Zuckerberg's Metaverse dream, the capital market does not pay

Zuckerberg firmly believes that the “Metaverse” dream can come true, so much that he bet the future of the entire company on the Metaverse, but the capital market does not pay.

Back at 7:00 a.m. on October 28, US time, Facebook founder Zuckerberg held a Connect conference and officially announced that he would change the company’s name to “Meta Platforms” and make the Metaverse the core of the company’s future development.

However, by 2022, Zuckerberg’s Metaverse business situation is not optimistic.

Recently, social media and digital advertising giant Facebook announced its fourth quarter financial report for fiscal year 2021, which is also its first quarterly financial report since the parent company changed its name to Meta Platforms (hereinafter referred to as Meta). The first performance answer sheet handed in.

Zuckerberg's Metaverse dream, the capital market does not pay

MetaPlatforms operating income, Figure / Futu Niuniu

According to the financial report, Meta’s fourth-quarter revenue of $33.67 billion was basically the same as market expectations of $33.43 billion, and earnings per share were $3.67, slightly lower than the expected $3.84. Daily active user DAU was 1.93 billion, slightly lower than the expected 1.95 billion. The monthly active user MAU of 2.91 billion was also slightly lower than the expected 2.95 billion. It guided for revenue of $27 billion to $29 billion in the first quarter, below expectations of $30.25 billion.

The overall performance was lower than expected, and on the Metaverse transcript, which has attracted great attention around the world, there has been a loss of more than 10 billion US dollars.

According to the financial report released by Meta, the “Reality Lab” department of Meta Metaverse business will have an operating loss of more than 10 billion US dollars (about 63.6 billion yuan) in 2021.

Meta shares plummeted after the earnings report. Zuckerberg’s Metaverse gamble, the capital market is not optimistic.

Zuckerberg explained that due to the weak revenue outlook in the first quarter, it is currently important to focus on the growing Facebook short video product. He said the company faced “unprecedented competition” with the rise of short-video platform TikTok.

User growth is stagnant, net profit growth has declined year-on-year, and the hugely invested Metaverse business has lost more than $10 billion a year. Facebook, after changing its name to Meta, has the worst report card in 10 quarters, and can continue to support Zuckerberg Has Lattice’s Metaverse dream come to fruition?

Metaverse business loses tens of billions

Zuckerberg’s Metaverse dream is colorful, but Meta’s betting Metaverse performance has lost more than 10 billion US dollars.

A few days ago, Meta’s financial report showed that the “Reality Lab” division of Meta’s Metaverse business will have an operating loss of more than 10 billion US dollars (about 63.6 billion yuan) in 2021.

The fourth-quarter earnings structure disclosed by Meta consists of two parts, one is the “application family”, including Facebook, Instagram, Messenger, WhatsApp and other services, and the second is FRL (Reality Labs, Facebook Reality Lab), including Hardware, software and content related to AR (Augmented Reality) and VR (Virtual Reality). 

Zuckerberg's Metaverse dream, the capital market does not pay

It can be seen that the four-quarter report released this time is unusual. This is the first time that Meta has disclosed the financial data of the FRL division that includes the Metaverse strategy. However, from the financial report data disclosed this quarter, the revenue contributed by the Metaverse to Meta is very small, and it is difficult to become a company in the short term. The company’s new growth engine.

That’s similar to Zuckerberg’s expectations for the Metaverse last July, where he wanted to build Facebook into a Metaverse company in about five years, until the Metaverse reached a certain size, but with multi-billion-dollar investments will eat into profits.

Reality Labs, which covers the AR/VR business, had a total revenue of $877 million in the fourth quarter of last year, but an operating loss of $3.304 billion.

Reality Labs, which carries the Metaverse Dream, mainly includes consumer hardware, software and content related to augmented displays and virtual displays. From the quarterly report, betting on Metaverse’s business investment and revenue is mainly reflected in hardware such as Quest 2 and software such as Horizon.

On the hardware side, the Quest 2 will be a big hit during Christmas 2021, and according to IDC data, the current Quest store transaction size has exceeded $1 billion.

And on the software side, Horizon is the core product at Meta’s vision to build the Metaverse. By the end of 2021, the VR social platform “HorizonWorlds” has been open to users aged 18 or over in the United States and Canada for free. In 2022, Meta also plans to launch a mobile version of the Horizon Metaverse social product, which will bring the virtual reality of the early Metaverse to life. The scene experience brings more existing mobile devices besides VR.

Although the hardware has brought meager profits, the software has continued to increase investment. While the revenue of the Metaverse business has grown, the losses of “Reality Labs” have also shown an expanding trend.

Judging from the performance of the full year, this has become a black hole of “burning money”. The data shows that Reality Labs will have an operating loss of US$10.19 billion in 2021, which is higher than the loss of US$6.62 billion in 2020 and the loss of US$4.5 billion in 2019.

Zuckerberg's Metaverse dream, the capital market does not pay

However, it is impossible to expect the Metaverse to make money now, and Zuckerberg has already prepared for burning money. He has previously stated that in the next three years, Facebook will focus on product improvement and infrastructure construction. Including the improvement of hardware and various functional components, the Metaverse will be in the stage of laying the foundation, and the investment in the Metaverse will not generate profits in the short term.

That is to say, at least in the next three years, Meta’s Metaverse business requires long-term capital investment, and the possibility of profitability is very small, which will undoubtedly compress Meta’s profit margin and put pressure on Meta’s cash flow.

The overall performance is lower than expected, how long can Zuckerberg support the Metaverse?

The Metaverse business is in a period of continuous investment, which will inevitably lead to an increase in costs and expenses, which casts a haze on Meta’s financial report.

According to the financial report, Meta’s revenue in the fourth quarter was US$33.67 billion, compared with market expectations of US$33.409 billion; earnings per share were US$3.67, compared with market expectations of US$3.84; net profit was less than US$10.3 billion, significantly lower than the expected US$10.9 billion, down 8% year-on-year. , which was the first drop in net profit since the second quarter of 2019.

In addition to the weaker-than-expected earnings report, the company’s business data also worried the market. The number of daily active users of Meta in the fourth quarter of last year reached 1.93 billion (1.95 billion expected), and the number of monthly active users was 2.91 billion (2.95 billion expected), which is the first quarterly decline in the number of daily active users on the platform on record. .

Zuckerberg's Metaverse dream, the capital market does not pay

While Facebook, the core social networking app, saw a drop in users, new users of Instagram, Messenger and WhatsApp in Meta’s family of apps announced a slight increase.

However, the slight increase in users of other social software did not bring revenue growth to Meta. According to Meta’s forecast in the financial report, the revenue in the first quarter of this year will be 27 billion-29 billion US dollars, which will be less than the market’s expected 30.15 billion US dollars.

Meta’s current slump is reflected behind the decline in both revenue and business data in the financial report.

In fact, Meta has lost about $10 billion in revenue since Apple introduced its new privacy policy last year.

The new iOS privacy policy hurts Meta’s business model based on targeted advertising, while macroeconomic conditions such as inflation and supply chain disruptions are also affecting advertisers’ budgets.

User dissatisfaction has also been exacerbated by previous privacy scandals, with some younger users turning to rival platforms such as TikTok.

In addition, the continuous investment in the Metaverse business has obviously become the biggest drag on Meta’s overall performance. Without the investment in Reality Labs, Meta’s profit for the whole year of last year would have exceeded 56 billion US dollars.

Where the Metaverse continues to invest can be seen from the financial report data.

Judging from the financial report, Meta has continued to invest heavily in Reality Labs, which shoulders the dream of the Metaverse, including hardware costs, core infrastructure investments and payments to partners, which has also led to the business losing more and more every year, from 2019 The annual loss of $4.5 billion will exceed $10 billion in 2021.

According to Meta’s chief financial officer, $4.2 billion of the more than $10 billion in losses was spent on staff costs, research and development and sales costs.

Zuckerberg's Metaverse dream, the capital market does not pay

Judging from the development of Meta’s Metaverse, the loss of over 10 billion will not stop, and there will be long-term losses in the future.

Meta’s CFO also said on the earnings call that he expects a “significant increase” in operating losses in 2022. The 2021 loss is in line with Zuckerberg’s investment in Reality Labs last year, and the 2022 loss will likely only get bigger.

During the call, Zuckerberg also acknowledged that the future of the Metaverse is uncertain. “The full realization of the vision of the Metaverse is still some way off,” Zuckerberg said. “While the direction is clear, our path forward is not perfect.”

Cultivating the Metaverse business has become a new growth pole for Meta. There is a long way to go, but how long can Meta, who is now exhausted, still be able to protect the Metaverse Dream with a lot of money?

The core advertising business is constrained by the general environment and Apple’s policy changes, and the Metaverse business still needs to be heavily invested. From the current point of view, Zuckerberg’s dream of the Metaverse cannot shoulder the mission of the second growth potential in the short term.

Stock prices plummet, capital markets don’t believe Zuckerberg’s big gamble

The situation of the Meta Metaverse business is not optimistic, and the capital market increasingly does not believe Zuckerberg’s big bet on the Metaverse.

The fourth quarter financial report of 2021 disclosed the business performance of Meta Metaverse for the first time. The data disclosed in the financial report was lower than expected, and the company’s business data was even more worrying for the market. After the financial report was released, Meta’s stock price plummeted, and its market value evaporated by nearly 180 billion US dollars.

However, this obviously will not stop Zuckerberg’s footsteps.

Meta’s layout in the Metaverse business has always been dominated by hardware investment, not only the Portal video calling equipment series, Ray-BanStories glasses, and different versions of the Oculus virtual reality headset, but also in the beginning of 2022. device. 

Zuckerberg's Metaverse dream, the capital market does not pay

Head-mounted device Oculus Rift, Figure / Meta official website

On January 25th, Meta and NVIDIA launched a new supercomputer-AI ResearchSuperCluster (artificial intelligence research super cluster), which is expected to be completed by the middle of this year.

In the “Metaverse” world, with the help of RSC, languages ​​around the world can be translated in real time, and seamless collaboration across borders and regions provides greater possibilities for Meta to build a Metaverse world.

In addition to launching the world’s fastest supercomputer RSC, among the seven investment priorities announced by Zuckerberg this year, the Metaverse business still accounts for a large proportion.

On the hardware of Metaverse, a high-end virtual reality headset will be released this year, and the first full augmented reality glasses Project Nazare will be developed; on the software, Horizon is still the core, and the Horizon version is planned to be launched on mobile devices this year, which can be used on Quest, The same avatar is used in Facebook, Instagram and Messenger, acting as a bridge between 2D social apps and 3D immersive virtual reality experiences, in an attempt to make a difference in software social with Metaverse stories.

In fact, the capital market’s disapproval of Meta is not due to its contempt for the technical layout of the Metaverse, but the greater reason is the gap between the concept of “dream and reality” in the Metaverse.

Such a crazy speed of burning money is a risk that really worries the market. It is foreseeable that for a long time in the future, Mate’s Metaverse business will not be able to contribute to net profit, which will continue to drag down the company’s cash flow.

Until now, before the various technologies that support the construction of the Metaverse have not matured, the capital market or global players still think that the “Metaverse” is only a marketing concept at present.

But even if the Metaverse Age is really fast approaching, it’s hard to say whether Meta can tell the story of the Metaverse.

What the capital market is worried about today is not only that Meta’s Metaverse business is burning money and making profits in the foreseeable future, but also that Meta’s own real crisis is already very serious.

With the rise of the short video platform TikTok, Meta lost about 500,000 daily active users in the fourth quarter of 2021 compared with the previous quarter, while Google, which is on the same digital advertising plate, still has a strong advertising business. The selloff came after Google’s parent company Alphabet posted better-than-expected results, sending shares up more than 7 percent.

The divergence of Meta and Google’s share price trends undoubtedly makes the capital market more cautious about Meta.

For Meta, there are still many competitors coveting the Metaverse track, and global Internet giants such as Microsoft, Nvidia and Roblox are all making efforts to enter the game.

Although Roblox, the “first stock of the Metaverse”, is the smallest in this big factory, it has been focusing on the development of the Metaverse for a long time. It is the first to write the concept of Metaverse into the prospectus. It is based on the three foundations of Studio, Client and Cloud. Facilities, Roblox has realized the editability and explorability of content at the game level, and the Metaverse has begun to take shape.

Zuckerberg's Metaverse dream, the capital market does not pay

Roblox Halloween page, photo/Roblox official website

With its deep accumulation in GPU, AI and other fields, NVIDIA provides a strong software and hardware foundation for its Metaverse system through the benign interaction formed by software and hardware. For example, Omniverse, a three-dimensional simulation and collaboration platform launched, can generate realistic interactive AI digital Image of the Omniverse Avatar.

Starting from the office application scenarios that Microsoft is good at, it has launched two softwares, Mesh for Teams and 365 Connection Space, which are used for online meetings and enterprise data management. In addition, it will develop a fully immersive Metaverse game series through the Xbox platform. .

In addition to the open and secret battles between giants in the field of Metaverse, in the field of VR, Meta is also under threat from Apple.

In order to build a Metaverse platform, Meta is still essentially inseparable from a hardware layout centered on the VR device, Oculus, and Apple’s first mixed reality headset may be available as soon as this year.

In terms of the technical layout of the Metaverse, the capital market believes more in Apple’s underlying technical layout capabilities. After all, Meta’s existing Oculus devices only run on a customized version of the Android system called VROS, and there is no independent underlying operating system.

From the perspective of software and hardware strength and technology, Apple is more competitive than the first mover Meta in the Metaverse field.

Meta’s basic social stock and advertising revenue basic business have suffered a double crisis, and the Metaverse business that Meta has aggressively attacked not only burns money, but also faces repeated attacks from global giants, and it is not yet capable of building and building a complete Metaverse. The ability of the universe is not something that can be solved by spending money in the short term.

There is no doubt that, at present, facing the bottomless pit of the Metaverse, where the input is disproportionate to the output, the capital does not believe in Zuckerberg’s unfinished gamble, and Zuckerberg can prove this year. The real value of the universe?

 (The header image of this article comes from the Meta Platforms official website.)

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