Meta under pressure for its investments in AR/VR while its growth is at a standstill

Meta is breaking records in virtual reality... but its social networks are suffering in the face of TikTok and Apple

For eight years now, Meta (at the time still Facebook) has been investing more and more in virtual and augmented reality technologies. Mark Zuckerberg sees it as the future of personal computing and has not hesitated to bet the future of his company on it, spending fortunes to set up an organization today composed of almost 18,000 people.

However, it seems to have reached the tolerance limit of some of its shareholders. During his presentation of the financial results for the first quarter of 2022, which took place on Wednesday evening, April 27, the executive indicated that Meta will “slow down some of our investments” following the “current level of our growth”. The company has revised its overall expenses down for 2022, reducing them by $3 billion.

Meta recorded $7.5 billion in profits (down 21% from 2021) for $27.9 billion in revenue (up 7%). This is its lowest growth rate since it went public in 2012.

Unsurprisingly, expenses are led by the Reality Labs division. While its revenues increased by 30% compared to the previous year in the same period (from $534 million to $695 million), its costs jumped by 62% (from $1.83 billion to $2.96 billion). Figures that are in line with the company’s forecasts. It charged $ 10 billion in expenses for Reality Labs in 2021 and had announced as early as last year that these expenses would grow even more.

…But which will not bear fruit until 2030

Mark Zuckerberg repeated his usual argument about the long-term vision necessary for the completion of this project, reiterating that he expects the Reality Labs division to become a profitable business only at the end of this decade, but that the next one would be “very interesting” thanks to these investments made upstream.

While it will continue to spend billions on the subject, it is undeniable, however, that it is now facing strong pressure from its main business, that is, those that generate the majority of its income. TikTok’s competition in the popular segment of young users and Apple’s implementation of the App Tracking Transparency, which hinders its ad tracking technologies (and has already caused it to lose at least $ 10 billion in revenue), significantly weaken Meta.

To this is added the pressure of the regulators (both European and American) which does not relax. The company already anticipates spending in the region of a billion dollars on fines this year. Added to this is the context of the war waged by Russia against Ukraine, which is impacting the online advertising market as a whole. For example, Facebook is no longer available in Russia.

Finding the balance

The good news for the company is that the number of users of Facebook, which remains its flagship product, increased by 4% this quarter, amounting to 1.96 billion daily users. It had fallen for the first time at the end of 2021, a signal that had distraught the stock market and caused the collapse of the price of Meta. The latter rose by 18% following this news and the fact that the company exceeded the expectations of the analyzes, but it still remains well below its value in mid-2021.

The solutions put forward by Meta remain the same as during its last results: bet on Instagram Reels with a short-duration video format to cope with TikTok (which seems to be well engaged), continue to counteract the changes introduced by Apple on iOS, and grit your teeth until the virtual and augmented reality market takes off for good. Meta is counting on the launch of the Cambria project, a high-end helmet with wider uses than the Quest 2, to demonstrate the viability of its strategy.

The next few years are likely to be a tightrope exercise for Meta, between the need to maintain the health of the current business model while continuing to invest in the metaverse against other titans like Apple, Google or Microsoft.

Outsourced Development Services | Unreal Engine Development

Ready to see us in action:

More To Explore

IWanta.tech
Logo
Enable registration in settings - general
Have any project in mind?

Contact us:

small_c_popup.png