Mark Zuckerberg wants to spend big on the metaverse, but investors are skeptical

Meta

The metaverse would only get more expensive as time goes on, and that's what Mark Zuckerberg told the world last October. His company's stock price has fallen in recent months and he is no longer talking about it.

During the company's first-quarter earnings call Wednesday, CEO Mark Zuckerberg said that Meta would slow the pace of some investments due to the company's current business growth levels. The company's first quarter profits were $7.5 billion, down 21 percent from a year ago. The company went public a decade ago and revenue has grown at a slower rate. The expense range was lowered by $3 billion.

The metaverse is still being built by Mark Zuckerberg, and he thinks it will one day be as big as the mobile internet. The Reality Labs division of Meta lost almost $3 billion in the last quarter and has 17,000 employees. When the payoff is years away, investors are not comfortable with that level of spending.

A stock price can tell a story. The last five years of growth have been wiped out by the plummet in Meta's price since it was rebranded from Facebook. That was when it was revealed that he was spending $10 billion a year on Reality Labs and that he expected the investment to grow despite not seeing a return until at least the latter half of this decade.

If his core business of ad-driven social media was growing like it was in years past, investors would have responded positively to the Meta pivot. The timing couldn't have been worse: Facebook is growing slower than ever, thanks to younger users leaving the service. TikTok is spending a lot of time on Facebook. Meta has lost more than $10 billion in revenue because of Apple's ad tracking changes. Regulators have blocked the ability of Facebook's CEO to make big acquisitions in social media.

The growth of Facebook is slower than ever. The blue app grew its daily users by just 4% to 1.96 billion last quarter, despite reporting its first-ever drop in daily users in the fourth quarter. Meta's stock price shot up more than 15 percent after it reported better-than- expected earnings per share in the first quarter.

According to Jasmine Enberg, a principal analyst at Insider Intelligence, the ad business continues to face real challenges. With the rise of TikTok, brand safety concerns, and a shift in social media user behavior, there is a perfect storm heading straight for Meta.

It's clear that in the short term, it will revive its growth. He said Wednesday that the company's short-form video product, Reels, accounted for 20 percent of time spent on the photo sharing service. Meta is early in the business of selling ads, but it is following the same path as Facebook did.

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The next major hardware product for Reality Labs would be a high-end mixed reality headset. He said Cambria will focus on work use cases and eventually replacing your laptop or work setup.

The web version of Meta's social platform will only be available on the Quest headset. That will put more competition in the way of 3D gaming and social apps. The upcoming software update will make it a lynchpin bet, as it will be integrated more tightly with the Quest. Meta has yet to introduce an ads system for virtual goods.