Facebook rattled investors on Wednesday by posting a rare profit decline, driven by the company’s heavy spending on its vision for a so-called metaverse while simultaneously confronting advertising challenges on its existing services.
The company, formerly known as Facebook, posted net income of nearly $10.3 billion in the final three months of last year, a decline 8% from the same period in the prior year and below Wall Street analysts’ projections.
The profit decline comes as Meta (FB) invests heavily into the VR and AR technologies it believes will help build the metaverse, a so-far-just-conceptual immersive form of the internet that CEO Mark Zuckerberg has identified as the company’s future.
At the same time, Meta is combating a change Apple’s iOS that has weighed heavily on its core advertising business. Meta’s shares plunged as much as 23% in after-hours trading following the report.
Meta was set to lose a fifth of its market value, erasing about $200 billion. If the premarket losses hold, a decline of this size in Thursday’s session would mark the company’s worst one-day loss since its Wall Street debut in 2012.
“Meta CEO Mark Zuckerberg may be keen to coax the world into an alternate reality, but disappointing fourth-quarter results were quick to burst his metaverse bubble,” said Laura Hoy, an equity analyst at Hargreaves Lansdown.
Big U.S. tech companies have come under mounting pressure in 2022 as investors expect policy tightening at the U.S. Federal Reserve to erode the industry’s rich valuations following years of ultra-low interest rates. The tech-dominated Nasdaq (.NDX) fell more than 8% in January, its worst monthly drop since the end of 2019. “The downgrade in the earnings outlook by Meta and other companies took markets by surprise,” said Kenneth Broux, a strategist at Societe Generale in London.
