Meta earnings disappoint as the company pushes into the metaverse – CNET

Facebook parent Meta said Wednesday that the augmented and virtual reality business at the heart of its metaverse ambitions generated $877 million in revenue, but disappointing fourth-quarter earnings underscored how much the company relies on its social media businesses.

The details mark the first time the company has broken out the performance of its AR and VR unit, which is known as Reality Labs. The unprofitable unit — it lost $3.3 billion in the quarter — oversees the Oculus headset that will help anchor the company’s push into the metaverse. 

Last year, Facebook rebranded itself as Meta, a change that fueled hype around the online spaces where people will be able to work and socialize as digital avatars. However, Meta remains reliant on digital advertising on the Facebook social network and its photo service Instagram even as it barrels toward the metaverse.

“While we expect Meta to ramp up testing ads and commerce within its metaverse offerings this year, those efforts will be highly experimental and not likely to drive much revenue in the near term,” said Debra Aho Williamson, a principal analyst at Insider Intelligence, which was formerly eMarketer.

In the fourth quarter, Meta posted revenue of $33.7 billion, above analyst expectations of $33.4 billion. But it earned $3.67 per share, falling short of the $3.84 per share projected by analysts surveyed by Thomson Reuters. 

Meta’s stock plunged more than 20% in after-hours trading. The company’s stock ticker is expected to change to META from FB in the first half of the year.

Meta, like other tech companies, has warned that privacy changes imposed by Apple could make it harder for businesses to measure the effectiveness of their ads on Facebook and Instagram. The company also said it expected “headwinds” caused by inflation and supply chain disruptions that affect advertiser budgets. 

Facebook and Instagram users are also spending more time on the platform’s short-form video product, Reels, which doesn’t generate as much revenue as the company’s News Feed or Stories where people can post content that vanishes in 24 hours. That’s partly because Reels doesn’t include as many ads compared to News Feed or Stories. On top of that, Facebook is facing more competition from other apps such as short-form video app TikTok. Facebook’s daily active users in the fourth quarter dropped from 1.93 billion to 1.92 billion, with the quarterly drop mainly coming from developing countries.

“I’m confident that leaning harder into these trends is the right short-term tradeoff to make in order to get long-term gains. We’ve made these types of transitions before with mobile feed and Stories,” Meta CEO Mark Zuckerberg said in a call with analysts. 

Though the metaverse concept has been around for years, Meta has been hiring engineers and purchasing VR apps to bolster the creation of its virtual worlds. At Christmas, the Oculus app required to set up the Quest headset topped Apple’s App Store, suggesting that people had purchased the headsets over the holidays as a gift. The social network is also working on augmented reality glasses and, with Ray-Ban, released its first pair of smart glasses to shoot photos and videos. 

Meta’s efforts to build more digital realms has been bumpy. The company still faces criticism that it doesn’t do enough to combat misinformation, hate speech and other types of offensive content, problems that will only grow more complex in the metaverse. The US Federal Trade Commission and multiple states, led by New York, are reportedly investigating potential anticompetitive practices by Oculus. This week, Meta shuttered its Diem cryptocurrency project after regulatory pushback. 

The challenges haven’t stopped Meta from pushing forward with its futuristic vision of what it thinks will be the successor to the mobile internet. 

“If last year was about putting a stake in the ground for where we’re heading, this year is going to be about executing,” Zuckerberg said.