Year in Review: How (Badly) Did Meta Do in 2022?
With nearly USD 237 billion wiped out from its valuation in early February, Meta had a rough year in 2022. The moment was historical, albeit, for the wrong reasons. It was the biggest drop in a single-day valuation for a US-based company. Late Show host Stephen Colbert called it ‘karmic retribution’ for all the misinformation prevailing on its social media platforms.
Overall, shares of Meta plunged more than 60% this year. The company was also labelled the worst performer in S&P 500 in 2022 by Forbes. Further, this year, Meta cut costs across its business by downsizing its teams by about 13% and letting over 11,000 employees go, scaling back budgets, reducing perks, and shrinking its real estate footprint.
Investors losing confidence
Meta CEO Mark Zuckerberg’s optimism about the Metaverse is well known. However, the optimism is not shared by Meta’s investors or for that matter, some of its employees. Until last year, Meta’s stock was performing well, riding on the boom fuelled by the pandemic; however, this year tells a different story. Investors are asking Zuckerberg to scale back on his Metaverse plans.
In an open letter titled ‘Time to Get Fit’, Brad Gerstner, one of Meta’s largest investors, said that Meta’s larger focus on the Metaverse has distracted it from focusing on the core business. So far, Meta has already invested nearly USD15 billion in Reality Labs, its Metaverse unit. Undeterred by investors’ scepticism, Zuckerberg ??reiterated his commitment to investing even more in the segment.
However, Zuckerberg did mention that the company is still spending around 80% of its spend on its core business (Facebook, Instagram, and WhatsApp) and not on Reality Labs.
To make matters worse, Horizon World, Meta’s social VR experience platform, has failed to attract users. As of October this year, it had around 200,000 users. By the end of 2022, Meta was expecting to have 500,000 users on Horizon World’ however, the company scaled back on its estimates and expects to hit 280,000 users only.
On the AI front
When it comes to AI, Meta did not have an eventful year here either. Its Galactica AI, an open-source large language model, trained on scientific knowledge, was taken down just after three days of release. Galactica was heavily criticised by members of the AI community for producing inaccurate results. Micheal Black, director at Max Planck Institute for Intelligent Systems, said Galactica Galactica generates grammatically incorrect text. “It offers authoritative-sounding science that isn’t grounded in the scientific method. It produces pseudoscience based on statistical properties of science writing,” he said.
In August, Meta also released its AI chatbot BlenderBot3. The chatbot had access to the internet and soon started generating controversial content. For example, when asked about Zuckerberg himself, the chatbot said, “…his company exploits people for money, and he doesn’t care”. It also spewed anti-Semitism and conspiracy theories with élan.
However, not all was lost for Meta’s AI. Last month, Meta showcased its AI agent CICERO, which is the first AI agent to achieve human-level performance in a complex natural language game called ‘Diplomacy’.
Let’s talk finance
In Q3, Meta reported revenues of around USD 27.71 billion, down by 4% year-on-year. This year, Meta has posted consecutive quarters of revenue declines in Q2 and Q3 and is expecting to post its third straight drop in the fourth quarter as well.
So, what’s impacting Meta’s financials in 2022? It has mostly to do with advertisers holding back on their spending amid economic uncertainty, an ongoing war and global supply chain constraints.
Further, the implementation of iOS14 (which hinders Facebook and Instagram’s ability to track their user’s digital activities) and heavy competition from Tiktok have also impacted Meta’s earnings in 2022. Tiktok, the social media platform owned by Chinese company ByteDance, has emerged as a competitor for not only Meta but also Google.
The company is slowly eating away ad revenue shares of the tech giant, and some reports suggest Tiktok’s ad revenue will surpass that of Meta and YouTube (owned by Google) by 2027.
This year, Meta’s total costs and expenses also surged, reaching USD 62 billion in the first nine months of 2022, compared to USD 50 billion in the prior-year period. Meta’s bet on the Metaverse is also costing the company a lot, with Reality Labs losing nearly USD 9 billion in the first three quarters.
What’s in stock for 2023?
Irrespective of what investors think, in 2023, Meta will spend even more money on building the Metaverse. “Beyond 2023, we expect to pace Reality Labs investments such that we can achieve our goal of growing overall company operating income in the long run,” Meta said in a statement.
Crumbling ad revenues with the likes of Apple and Titok entering the space, Meta has to continue to spend big on the Metaverse. With the future of the company in question, Zuckerberg realising his vision for the Metaverse could be what saves Meta.
Further, advertisers are expected to hold back on spending until the economy recovers; hence Meta’s poor ad revenue is expected to continue in 2023 as well.
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