Investors wiped $80bn (£69bn) off the market value of Facebook and Instagram’s owner, Meta, after Mark Zuckerberg’s company reported profits had halved during the third quarter as advertisers reined in spending amid the global economic downturn.
The 25% tumble in Meta’s share price since Wednesday evening has knocked billions off the personal wealth of Zuckerberg, its chief executive and largest shareholder.
The sell-off began during overnight trading after a downbeat results presentation, and continued when markets reopened on Thursday. It was one of the most dramatic devaluations Wall Street has seen since investor confidence in Silicon Valley stocks began to crumble at the start of the year.
Meta’s shares briefly dipped below $100, taking them to their lowest level since 2016, with investors unconvinced by Zuckerberg’s bet that his company’s future lies in the metaverse, a virtual reality world that users will experience through its Oculus headsets.
With a 13% Meta stake, Zuckerberg has seen his net worth plummet by $90bn so far this year because most of his fortune is in the company’s shares. His holding stood at just over $125bn at the start of 2022, according to Bloomberg data, but its value has now fallen to $35bn.
Reality Labs, the company’s metaverse division, made a $3.7bn loss over the past three months, while the company said it anticipated these losses would “grow significantly year over year” in 2023.
Meta, which also owns WhatsApp, reported $27.7bn in revenue for the third quarter – higher than analysts’ forecasts – as sales shrank by 4% compared with the same period a year earlier. The company reported $4.4bn profit for the same period, 52% lower than the $9.2bn it made a year earlier. The company warned of weaker trading ahead.
Amid growing competition from TikTok, Meta is also suffering from a slowdown in advertising spend.
Meta’s results were the latest in a series of disappointing earnings reports. The company has invested heavily in new products that have so far failed to bear fruit. It lost $230bn in market value in February in the biggest one-day loss in history for a US company, after its shares slumped by 26%.
Meta’s costs and expenses climbed by 19% in the third quarter compared with a year earlier. This was as a result of spending on the metaverse and on its short-form video-content product Reels.
Faced with concern from investors about the losses, Zuckerberg said he was confident that spending on the metaverse and other “experimental bets” would begin to pay off.
“Over time, these are going to end up being very important investments for the future of our business,” he said. “This is some of the most historic work we’re doing. People are going to look back on [this] decades from now and talk about the importance of the work that was done here.”
He added: “While we face near-term challenges on revenue, the fundamentals are there for a return to stronger revenue growth.”
Meta and other tech companies have been hit by fears of recession and rising inflation. Google’s parent company, Alphabet, and Microsoft have also disappointed investors with third-quarter results.
In addition, Meta has struggled with changes to Apple privacy policies enacted in 2021 that undercut its primary advertising model – which the company predicted would cause it to lose out on a projected $10bn in ad revenue in 2022.
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Splitting up Facebook’s business from its metaverse project could be one way to restore the company’s share price, said Sir Martin Sorrell, the founder of digital advertising company S4 Capital.
“If you manage to split Reality Labs, where the investment is being made in the metaverse, from the Facebook and Instagram platforms … you might have a very different market result and you probably would see an accretion in the value of Facebook platforms,” he told BBC Radio 4’s Today programme.
Meta hinted at job cuts, after first announcing a staff hiring freeze and potential restructuring in September.
The company said it would be “holding some teams flat in terms of headcount, shrinking others and investing headcount growth only in our highest priorities”. It added: “As a result, we expect headcount at the end of 2023 will be approximately in-line with third-quarter 2022 levels.”
Meta has also forecast a drop in revenue for the year, its first since it floated on the stock market in 2012.
Its third-quarter losses indicated Meta had focused too intently on new ventures, said Debra Aho Williamson, an analyst with Insider Intelligence.
“Meta is on shaky legs when it comes to the current state of its business,” she said. “To return to stronger growth, Meta needs to turn its business around. It would benefit from less priority on the metaverse and more on fixing its core business.”