Meta's proto-universe business lost more than $10 billion after hours, down nearly 23% after hours

Per reporter: Wen Qiao Per editor: Tan Yuhan

On February 2, 2022, local time, Facebook's parent company Meta plunged nearly 23% after hours, falling $74 to a one-year low.

On the same day, Meta announced its fourth quarter earnings report and the first quarter of this year's performance guidance. The fourth-quarter earnings report showed that the company's profit and number of users in the quarter were less than expected. Facebook's daily active users fell slightly compared to the previous quarter, the first quarterly decline since the data was recorded.

Revenue and user growth were less than expected

On February 2, 2022 local time, Meta released its fourth quarter earnings report last year after hours, which was the first quarterly earnings report since facebook's parent company changed its name in October last year.

According to the earnings report, Meta's fourth-quarter revenue was $33.67 billion, the market expected $33.409 billion; earnings per share was $3.67, the market expected $3.84; net profit was less than $10.3 billion, significantly weaker than the expected $10.9 billion, down 8% year-on-year, the first net profit decline since the second quarter of 2019.

At the same time, the indicators of key users are also significantly lower than market expectations. According to the financial report, Facebook's daily active users in the fourth quarter were 1.93 billion, an increase of 5% year-on-year, but lower than the market's expectation of 1.95 billion; monthly active users were 2.91 billion, up 4% year-on-year, lower than the market expectation of 2.95 billion.

The company said it expects revenue of $27 billion to $29 billion in the first quarter of this year, less than the market expectation of $30.15 billion.

Meta warned that the company suffered from high inflation, Apple's privacy policy changes and potential supply chain disruptions for advertisers, among other macroeconomic challenges, and blamed its lower-than-expected growth in part on inflation and supply chain issues affecting advertisers' budgets.

In addition, Facebook executives also pointed out that consumer behavior toward Facebook's TikTok-like products has changed — that is, people spend more time on Reels videos, and the revenue of the product is far less than other core products, while also facing fierce competition from services such as TikTok, which will continue to bring disadvantages.

Meta-universe business unit losses of more than 10 billion yuan dragged down the company's overall profitability

Notably, Meta disclosed for the first time in its earnings report the financials of its Reality Labs division, which contains Meta's meta-universe strategy, including hardware, software and content related to AR (augmented reality) and VR (virtual reality).

According to the financial report, the division experienced huge net losses in 2019, 2020 and 2021, and the amount of losses expanded year after year, at $4.5 billion, $6.62 billion and $10.19 billion, respectively. According to CNBC, Reality Labs' losses dragged down Meta's overall profitability last year. If it weren't for Reality Labs, the company would have made more than $56 billion in profits for the full year last year.

Reality Labs' losses are in line with Zuckerberg's expectations. In Zuckerberg's vision of the metacosmology last July, he hoped to turn Facebook into a metacosmity company in about five years, and billions of dollars of multi-year investment would erode profits.

Meta's chief financial officer said on the company's earnings call on Wednesday that he expects another "significant increase" in operating losses in 2022.

Raj Shah, a technical analyst at digital consultancy Publicis Sapient, said: "Now is the time to test the Meta metacosm, which is still a long way from making a profit or filling the advertising revenue gap after Apple's privacy policy changes. ”

Pedro Palandrani, a research analyst at global X, an investment firm, called metaverses a "long-term story" in which investors are more focused on how Meta navigates Apple's privacy changes, e-commerce business breakthroughs, and ways to monetize Messenger or short video Reels features.

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