Future titan of the Metaverse Meta (formerly Facebook) reported its second quarter earnings on July 27 after market close and, after a decade of continuous revenue growth, Meta has turned in its first quarterly revenue decline.
Meta reported its first ever yearly decline in second quarter revenue, announcing a 1% drop in revenue to $28.82 billion (analysts had expected revenue of $28.92 billion). More importantly net income, or actual profit, fell 36% to $6.69 billion. As well as announcing the first yearly revenue decline in company’s history, Meta also issued a weak forecast for the third quarter, with revenue is expected to be $26 billion to $28.5 billion, saying that its guidance reflects “continuation of the weak advertising demand environment”. CEO Mark Zuckerberg said that the company was looking to reduce the size of its workforce in response to the revenue slowdown. “Our plan is to steadily reduce headcount growth over the next year,” Zuckerberg said on the earnings call. “Many teams are going to shrink.”
Following Meta's second quarter earnings announcement, its stock price dropped by more than 8%. Shares have lost about half their value this year as marketers have reigned in advertising spend. Back in February shares plummeted 26%, the biggest single-day slide in market value for a US company, after Meta issued a dismal forecast, blaming Apple’s privacy changes and increased competition. This huge drop, erased over $200 billion from Meta's market capitalization.
Meta’s Reality Labs segment, which is responsible for development of Meta’s virtual reality (VR) headsets and its Horizon metaverse platform, posted a $2.8 billion operating loss for the second quarter on $452 million in revenues. Meta’s investment in the Metaverse has been a drain on its cash reserves, with Zuckerberg telling shareholders in May that he expected Metaverse development to keep losing the company money for the next three to five years. Meta’s Reality Labs losses were foreshadowed by the company’s previous announcement that it will increase the price of its Quest 2 VR headsets by $100 from August 1. The price of the 128GB model will go from $299 to $399, while the 256GB model will jump from $399 to $499.
This comes on the back of an recording of an internal all-hands meeting obtained by The Verge, where, in response to an employee question about Apple’s notable absence from the recently inaugurated Metaverse Standards Forum, and, said: “Apple is going to be a competitor. I think that that’s pretty clear, but it’s actually a very deep competitor. It’s not just [that] they have a device that has some more features than us. It’s a very deep, philosophical competition about what direction the internet should go in.” Apple have been a thorn in Meta’s side in recent years, with its privacy efforts having limited Meta’s advertising profitability since 2018. Thanks to Apple, Meta can no longer effectively track user activities. The question is whether or not this fight will escalate, should we expect a future titans of the Metaverse battle? Or all-out war?
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