Zuckerberg’s nightmare is hard to wake up: Meta growth will bring down the Metaverse

Following the release of its first eye-popping “Metaverse” earnings report two months ago, META once again announced a mixed earnings report after the market close on April 27, Eastern Time.

The main “worry” is that the financial report shows that the company’s total revenue in Q1 in 2022 was US$27.91 billion, lower than the average forecast of US$28.28 billion by FactSet analysts, an increase of 7% year-on-year, the lowest growth rate since its listing in 2012. Operating margin was 31%, down from 43% in the first quarter of last year.

Meanwhile, the company gave second-quarter revenue guidance of between $28 billion and $30 billion, which was below analysts’ forecast of $30.6 billion.

“Happy” mainly includes the company’s net income of $7.465 billion in the quarter, although it fell 21% year-on-year and has fallen for the second consecutive quarter, but higher than analysts’ expectations of $7.1 billion. Earnings per share were $2.72, beating consensus estimates of $2.56. Meanwhile, Facebook’s average daily active users in March was 1.96 billion, up 4% year-on-year, better than analysts’ average forecast.

At the earnings conference, Zuckerberg said that he will slow down some of the investment in artificial intelligence infrastructure, business platforms and reality labs. That was lower than the previous forecast of $9-95 billion.

After the Q2 earnings report was released, META’s stock price soared nearly 20%. As of after-hours trading on April 27, eastern time, META’s stock price was $207.08, an increase of 18.37%.

Since the beginning of this year, META is one of the top five FAANG technology stocks after Netflix’s share price collapse.As the first “Metaverse” financial report released in February this year showed that the company’s profit fell more than expected, the revenue outlook was bleak, and the number of daily active users decreased, Meta’s stock price has fallen by nearly 44% after the release of the financial report, and the company’s market value has lost nearly 3880 yuan. One hundred million U.S. dollars.

However, although the release of the first quarter financial report seems to rekindle market confidence, META is still facing the increasingly fierce battle for social platform users, privacy headwinds in the advertising business, continued heavy investment in the Metaverse business, and uncertainty brought about by the Russia-Ukraine war. The unfavorable factors such as exacerbation are superimposed, and the long-term prospects are still unclear.

The main business of “advertising” faces adversity

As the mainstay of the company’s revenue, META’s advertising business is not easy.

According to the financial report, Meta’s advertising revenue in the first quarter was US$26.998 billion, a year-on-year increase of 6.1%, which was lower than market expectations, and also lower than the year-on-year growth rate of advertising performance in each quarter of 2021. It is also the lowest level since the second quarter of 2021. Among them, in the first quarter, the number of ad impressions of app series increased by 15% year-on-year, and the average price of each ad decreased by 8% year-on-year.

The reasons for the lower-than-expected advertising revenue include the Russian-Ukrainian war affecting the advertising of European companies. In Q1 of 2022, Europe was the only market in which META’s advertising revenue declined. Revenue in the quarter was 6.364 billion yuan, slightly lower than the 6.373 billion yuan in the same period last year.

The adjustment of Apple’s ios privacy policy also has a persistent negative impact on META’s advertising revenue. In the fourth quarter of last year, Meta estimated that the impact was expected to be at least $10 billion due to changes to the iOS privacy policy. In the first quarter of this year, META also emphasized that IOS 15 will affect advertising growth goals and performance measurement.

Zuckerberg's nightmare is hard to wake up: Meta growth will bring down the Metaverse

META’s advertising revenue is currently facing strong headwinds. Next, the control of META and other technology giants from the European Union will continue to have an adverse impact on its main business.

On March 24 this year, the European Union announced the Digital Markets Act (DMA), which targets Apple, Google, Meta, Amazon and Microsoft in antitrust governance, aiming to regulate the five major companies in Europe. Business conduct and market dominance. Once Silicon Valley giants violate the DMA, they will face fines of up to 10% of their global annual turnover in the previous fiscal year, as well as fines of up to 20% for re-offending, and even risk being split.

Then on April 23, the EU agreed on broad terms of the Digital Services Act (DSA). The bill would force tech companies to take greater responsibility for the content that appears on their platforms, including faster removal of illegal content and merchandise, explaining to users and outside researchers how their algorithms work, and taking more action against the spread of false information. strict action. Companies can face fines of up to 6% of their annual turnover if they fail to comply.

These two bills may come into effect later this year, combined with Apple’s ios privacy policy, the uncertainty of the Russian-Ukrainian war, and factors such as inflation and macro supply chain impact on advertisers’ budgets, META’s advertising business prospects are undoubtedly cast a layer. shadow.

User growth recovers but headwinds remain

As the world’s largest social application software, the growth of META’s active user scale has flattened, and the aggressive short video platform TIKTOK is competing for users, which has greatly affected the growth rate of META’s active users. The company’s daily active user base fell by 2 million in the fourth quarter of last year.

However, the growth rate of META’s user activity in the first quarter of this year exceeded market expectations. According to the financial report, the average daily active users in March was 1.96 billion, a year-on-year increase of 4%, which was better than the average analyst expectation. Average monthly active users were 2.936 billion, a year-on-year increase of 3%.

Affected by the Russian-Ukrainian war, in the European market, META’s user data performance is poor – the average daily active users are 307 million, which is lower than the 309 million in the same period of the previous year; the average monthly active users are 418 million, which is lower than the 423 million in the same period of the previous year. , also the lowest level since the first quarter of last year. During the earnings call, META expects that global monthly active users will be affected by the withdrawal from the Russian market, and that global monthly active users will remain flat or even decline.

Average revenue per user (ARPP), a measure of the monetized user base, was only $7.72 in 22Q1, down from $7.75 a year earlier and the lowest level since Q4 2020.

Zuckerberg's nightmare is hard to wake up: Meta growth will bring down the Metaverse

META is developing short video product Reels to deal with competition from TikTok. In the earnings conference call after the Q1 earnings release in 2022, Zuckerberg said that Reels is developing rapidly. Users spend 20% of their time watching Reels’ short videos on Instagram and 50% of their time on Facebook. short video.

Metaverse business outlook remains hazy

In its earnings report in February this year, Meta first announced the related performance of the company’s Metaverse business, which is collectively known as FRL (Reality Labs, Facebook Reality Labs), including AR (augmented reality) and VR (virtual reality). Hardware, software and content.

Zuckerberg previously mentioned that in the next 1-3 years, Facebook will be in the stage of laying the foundation for the Metaverse, and the investment will inevitably lead to a huge increase in costs, and the development of the Metaverse is not achieved overnight, and the profit space in the short term is relatively limited.

In Q1 2022, the total revenue of this business was US$695 million, down 20.7% from US$877 million in the fourth quarter of last year, but higher than analysts’ expectations of US$677.1 million. In the first quarter, the revenue of this business accounted for 2.49% of the total revenue, and the operating loss reached 2.960 billion yuan.

Last December, Meta took its first step toward making the Metaverse a reality — launching Horizon Worlds, a virtual reality platform. The platform includes Horizon Worlds for life and entertainment, Horizon Venues for large-scale events such as concerts, and Horizon Workrooms, a VR office platform. A place where users can gather with friends in the form of virtual people, and can meet, talk and interact by wearing VR headsets.

The user base of this platform has grown rapidly, surpassing 300,000 users in February this year, and the number of newly created worlds has exceeded 10,000. But problems also arise: Many women have come forward to complain about sexual harassment and assault on Horizon Worlds and its sister platform Horizon Venues.

In the wake of the sexual harassment incident, Meta announced the “Personal Boundary,” which acts as a force field around the avatar to prevent others from getting too close. Meta says that Personal Boundary is always on by default and cannot be turned off. In the future, the company will decide whether to add new controls, such as allowing users to customize the size of their Personal Boundary.

The backwardness of user network infrastructure also hinders the expansion of the Metaverse. At the Mobile World Congress (MWC) held at the end of February this year, Dan Rabinovitsj, vice president of Meta, pointed out that the current home network and mobile network are far from ready for the “Metaverse”. .

The “high commission” of the meta Metaverse platform has caused widespread controversy in the market. In February of this year, there were media reports that Meta would take a high percentage of creators’ earnings. In April, Meta began to test the platform transaction function of Horizon Worlds, namely in-world purchases: For users on the WEB and mobile terminals, Meta will take a 25% commission. For users who enter through the Oculus VR headset, Meta takes a commission of up to 47.5%.

Although META’s commission is lower than the 75.5% commission of similar Roblox platforms, the nearly 50% commission may also make creators dissatisfied and the platform grow.

This has also attracted some complaints from competitors. For example, Apple spokesman Fred Sainz said in an interview with the media: “Meta has repeatedly accused Apple of charging iOS developers 30% of in-app purchase commissions. Now Meta charges these developers more than any other platform. This approach fully exposes the hypocrisy of Meta. On the one hand, they want to use Apple’s app store platform for free; Creators and small businesses.”

Zuckerberg's nightmare is hard to wake up: Meta growth will bring down the Metaverse

In the first quarter of 2022, despite the improvement in user data and higher-than-expected profits, META’s growth alarm has not been lifted – including policies, wars, inflation, macroeconomics and other factors affecting performance growth, as well as advertising business growth expectations, Metaverse The business outlook is unclear.

What is the future prospect of Meta? No one can tell. It’s just that the road to success will be difficult and long.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/zuckerbergs-nightmare-is-hard-to-wake-up-meta-growth-will-bring-down-the-metaverse/
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