Digging dead stock above bleak expectations and expensive bets

Digging dead stock above bleak expectations and expensive bets


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Written by Katie Paul and Shafi Mehta

(Reuters) – Facebook’s parent company Meta Platforms Inc on Wednesday forecast a weaker holiday quarter and significantly higher costs next year, sending shares down nearly 20% as investors expressed doubts about the company’s expensive bets.

The forecast has eroded about $67 billion of the market value of Meta shares in the expanded trade, adding to the more than half a trillion dollars in value it has already lost this year.

If the after-hours loss for Meta stock is matched in Thursday’s trading session, it would be the deepest one-day loss since February 2, when the company released its latest dismal forecast.

The disappointing outlook comes as Meta grapples with slowing global economic growth, competition from TikTok, privacy changes from Apple, concerns about massive spending on the metaverse and the ever-present threat to regulation.

Executives announced plans to consolidate offices and said Meta would keep the number of employees steady through the end of 2023.

Revenue declined 4% in the third quarter ended September 30. That deepened the revenue decline that began in the previous quarter, when the company posted its first-ever revenue decline of 0.9%, although it was less steep than the 5.6% drop on Wall Street. Expected, according to IBES data from Refinitiv.

Graphic: Meta’s revenue fell for the second consecutive quarter https://graphics.reuters.com/METAPLATFORMS-RESULTS/dwvkrbbwbpm/chart.png

Even more worrisome is the company’s estimate that fourth-quarter revenue will be in the range of $30 billion to $32.5 billion, most of it under analyst estimates of $32.2 billion, according to Refinitiv data.

Meta also projected that its expenditures for the full year of 2023 would be $96 billion to $101 billion, well above the revised estimate of total expenditures for 2022 of $85 billion to $87 billion.

This includes an estimated $2.9 billion in fees over 2022 and 2023 from downsizing the office.

It also predicted that operating losses associated with the Reality Labs unit responsible for its metaverse investments would grow in 2023 and pledged to “accelerate” the investments thereafter.

Total costs for the third quarter came in above estimates at $22.1 billion, compared to $18.6 billion a year earlier.

“Bets”

Meta is making several reforms to its apps and ad products to keep its core business pumping profits, while also investing $10 billion annually in betting on the metaverse’s hardware and software.

CEO Mark Zuckerberg said he expects reverse investments to take nearly a decade to pay off. In the meantime, he has had to freeze hiring, close projects and reorganize teams to cut costs.

An analyst on the investor call told Zuckerberg that investors were concerned the company had taken “too many beta bets” and asked the CEO why he thought his gamble would pay off.

Meta executives defended the spending, saying that most of the company’s expenditures still go toward core business, including investments in more expensive AI-related servers, infrastructure and data centers.

Zuckerberg added that he expects the metaverse work to provide returns over time.

He said, “I appreciate patience.” “And I think those who are patient and invest with us will end up with a reward.”

Zuckerberg said that Meta’s TikTok-like short video producer now plays more than 140 billion across Facebook and Instagram per day, up 50% from six months ago, and its revenue playback rates are now $3 billion annually.

He added that he believes Reels is winning against rival TikTok, with Reels retweeted over a billion times a day.

Meta has also published user growth numbers roughly in line with expectations, including an annual increase in monthly active users on the main Facebook app.

“The worry for Meta is that this pain is likely to continue into 2023 as cost headwinds remain a real challenge and a strong dollar impact on outside earnings,” said Ben Baringer, equity research analyst at Quilter Cheviot.

“With revenue falling at a time when costs have grown exponentially, modest user and impression growth simply won’t save you.”

Third-quarter net income fell to $4.40 billion, or $1.64 per share, from $9.19 billion, or $3.22 per share, a year earlier, its worst showing since 2019 and the fourth consecutive quarter of declining earnings.

Analysts expected earnings of $1.86 per share.

(Reporting by Katie Paul in Palo Alto, California and Shafi Mehta in Bengaluru; Additional reporting by Sheila Dang in Dallas; Editing by Anil de Silva, Peter Henderson and Lisa Shumaker)


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