Photo Credit: Marco Paköeningrat/Flickr.com
 

Earlier last week, Facebook (Nasdaq: META) announced its third quarter results that continued to disappoint the market. Facebook’s plans to continue to invest heavily in the development of its Metaverse are not being appreciated by investors. The stock is trading at 52-week low levels.
 

Facebook’s Financials

Facebook’s Q3 revenues fell 4% to $27.71 billion, falling short of the market’s estimates of $27.38 billion. Adjusted EPS was also below expectations at $1.64 against the market’s forecast of $1.89.

Average Family Daily Active People grew by 4% to 2.93 billion for September 2022. Family monthly active people (MAP) grew 4% to 3.71 billion as of September. Daily Active Users (DAUs) grew 3% to 1.98 billion and monthly active users (MAUs) grew 2% to 2.96 billion.

Ad impressions delivered across its Family of Apps increased by 17% and the average price per ad fell by 18%. Average Revenue Per User (ARPU) was $9.41 compared with the analyst estimate of $9.83.

For the fourth quarter, Facebook expects revenues to be in the range of $30-$32.5 billion, compared with the analyst estimate of $32.2 billion.
 

Facebook’s Growth Plans

In response to the growing economic concerns, Meta announced ways to manage its financials. It is planning to cut costs by steadily reducing headcount growth over the next year. It expects to hire and grow worker count only in its “highest priorities” segment. It is also focusing on three key areas of growth – its AI discovery engine that’s powering Reels and other recommendation experiences, monetization through ads and business messaging platforms, and its future vision for the metaverse.

Within AI, its discovery engine is playing an important role across its products, especially to help users discover content from across its networks in feeds that used to be primarily driven just by the people and accounts that the users followed. The recommendation includes Reels, which continue to grow rapidly. There are now more than 140 billion Reels plays across Facebook and Instagram each day, reporting a 50% increase from six months ago. The growth is driven by the success of its discovery engine and its ability to mix content alongside posts from the user’s family and friends feed. Meta also expects that as more social interactions move to message, it will act as a flywheel between discovery and messaging to make these apps stronger. For instance, on Instagram alone, people are resharing Reels over 1 billion times through their Direct Messages (DMs).

Meta counts messaging as another major monetization opportunity. It started with Click-to-Messaging ads, which allow businesses to run ads on Facebook and Instagram that can start a thread on Messenger, WhatsApp, or Instagram Direct to allow businesses to connect directly with their customers. The service is trending at a $9 billion annual revenue run rate. Click-to-WhatsApp recently crossed a milestone generating a $1.5 billion run rate, growing more than 80%. Meta sees paid messaging as another opportunity to tap into. It entered into a partnership with Salesforce that will allow businesses on its platform to use WhatsApp as the main messaging service. It also launched JioMart on WhatsApp in India to allow for an end-to-end shopping experience through messaging.

But the investors are not pleased with Meta’s plans for Metaverse. Revenues in its Reality Labs unit, which houses its virtual reality headsets and the metaverse business, fell by almost half to $285 million. During the same period, losses widened to $3.67 billion from $2.63 billion. The segment has lost $9.4 billion so far this year, and that number is expected to continue to grow. Meta expects the segment to start scaling down its losses beyond 2023.

But the biggest concern is the lack of user interest in Metaverse. Meta was targeting over 500,000 active Metaverse users by the end of this year. According to recent reports though, it now expects to end the year with 280,000 active users of which they are still to enroll 200,000. Reports suggest that Meta is finding it difficult to not only enroll, but also keep users engaged, leading to higher churn.

Meta has had a tough year so far. Its stock has fallen by nearly 70% since the start of the year. Post the results announcement, its stock fell 19% in the after-hours trading session. Its stock is trading around its 52-week low levels of $90.45 with a market capitalization of $240.1 billion. It hit a 52-week high of $353.83 in November last year.

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