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On February 2, 2022, Meta announced an annual earnings report that shocked investors by outlining $90-$95 billion in expense spending this year as the social media giant builds out a metaverse. On this news, the Company's capitalization dropped by $230bn.
On October 28, 2021, Mark Zuckerberg presented a new strategy for the development of the company towards the metaverse. Since then, the Company's capitalization has almost halved.
The creator of one of the most impressive success stories in the IT industry in recent years has increasingly given reason to think about the quality of company management. Facebook lost the battle for the attention of its users to the newcomer TikTok, failed to competently and promptly respond to the new conditions of Apple and Google user policies, and spends a huge amount of money on the metaverse.
The question of investment in the metaverse itself is complex and unpredictable. Given the genius of Mark Zuckerberg, it is difficult to predict whether this will become a success story or one of the most expensive toys.
Currently, we see a fading interest in NFT purchases, which are the basis for monetizing such projects. One of the biggest players in the field Roblox has a timing advantage over the Meta, but even they are incredibly far from making positive cash flows. At the same time, the Meta commission rates are significantly inferior to that paid by Roblox users (47,5% vs. 72%). Zuckerberg spends about 10 billion a year on this project, this is the price of half Roblox at current prices.
The main problem is not in the metaverse project itself, but in the fact that other directions are suffering at this time. Disappointing feedback comes from Company employees that Mark is devoting all his time to a new project at the expense of other areas. The best specialists are taken from other projects. This led to the fact that the company began to concede on its core business, which brings it all the profits.
Among the two main failures of recent years, highlight the loss of the race to TikTok and the blow to revenue from Apple. The company recognized the trends for a new type of content too late, so Reels is still less popular than TikTok. Even though the American government is actively fighting the Chinese company. With the iOS 14 upgrade in April 2021, Apple implemented the new IDFA no-tracking feature. Accordingly, to Meta management, the estimated revenue loss is ~$10B in 2022 due to this change (the same cost as Metaverse). Since then, Facebook has lost a significant share of the advertising market to Google. If the main goal of the team was to solve this problem, things could be different.
Taking into account all the facts, the actions of the Company, and the unequivocal market reaction, there are reasons to suspect that Meta's Leaders acted not in the best interests of the Company's stakeholders and were engaged in projects that are more interesting to them personally to the detriment of the core business, and this has already begun to take on critical weight.
Shock Event Date
02 February 2022