Investors Lose Hope on Zuckerberg, Dumps 20% of Meta Stocks

Investors rushed to dump Meta stocks after hours, pushing it down 20% and wiping $67 billion off

Wall Street is losing patience over Meta boss Mark Zuckerberg's enormous and experimental bets on his metaverse project that helped drive up the company's overall costs by a fifth in the third quarter. Investors rushed to dump Meta stocks after hours, pushing it down 20% and wiping $67 billion off its market value after the company posted its fourth straight decline in quarterly profit.

The Facebook parent said its overall expenses could rise as much as 16% next year and anticipates that operating losses at Reality Labs – the unit responsible for bringing the metaverse to life – "will grow significantly" next year.

One Meta shareholder had recently voiced concerns calling the company's investments "super-sized and terrifying". Analysts on Wednesday called them "confusing and confounding" and Meta's inability to cut costs "extremely disturbing".

On a post-earnings conference call, Jefferies analyst Brent Thill asked executives: "I think kind of summing up how investors are feeling right now is that there are just too many experimental bets versus proven bets on the core … I think everyone would love to hear why you think this pays off."

In the July-September quarter, losses at Reality Labs ballooned to a whopping $3.67 billion from $2.63 billion a year earlier. Revenue nearly halved.

"It would be a mistake for us to not focus on any of these areas that will be fundamentally important to our future," Zuckerberg said on the call.

"I know that sometimes when we ship a product … people say: 'Hey, you're spending all this money, and you've produced this thing,' and I think that's not really the right way to think about it."

The Meta investor recommends a plan to get the company's "mojo back" including reducing headcount expenses by 20% and limiting the company's pricey investments in "metaverse" technology to no more than $5 billion per year. "Meta needs to re-build confidence with investors, employees and the tech community in order to attract, inspire, and retain the best people in the world," Gerstner wrote in the letter. "In short, Meta needs to get fit and focused." The letter is the latest sign that Meta investors are starting to express reservations about the company's recent performance. Meta stock is down over 61% in 2022 so far.

At the end of the second quarter this year, Altimeter Capital held over 2 million shares of Meta. It's also a vote of less confidence about the company's ambitions in the world of virtual and augmented reality. Meta changed its company name from Facebook to better focus on its VR hardware and software, and is spending $10 billion per year on the technology. On Oct. 11, Meta announced a new high-end VR headset, the Quest Pro. However, there are few signs that VR or some of Meta's metaverse apps, like Horizon Worlds, are catching on with the public beyond early adopters. "In addition, people are confused by what the metaverse even means," Gerstner wrote. "If the company were investing $1-2B per year into this project, then that confusion might not even be a problem. An estimated $100B+ investment in an unknown future is super-sized and terrifying, even by Silicon Valley standards."

"It would be a mistake for us to not focus on any of these areas that will be fundamentally important to our future," Zuckerberg said on the call.

"I know that sometimes when we ship a product … people say: 'Hey, you're spending all this money, and you've produced this thing,' and I think that's not really the right way to think about it."

"…we're doing leading work that will become … eventually mature products at different cadences in different periods of time over the next five to 10 years."

He spoke about the company's various efforts, including a recently unveiled virtual and mixed reality headset called Quest Pro that is priced at $1,500 and a social metaverse platform where people can express themselves via avatars.

He said Meta is investing in two other areas: augmented reality and neural interfaces.