They say looking at the stars is like looking hundreds of millions of years into the past since those celestial bodies are so far away that the light they emanate takes eons to travel to our tiny planet.
As the market watches Meta Platforms (FB), formerly known as Facebook, jump another 14% at last check Thursday, one might get a similar feeling.
The stock is up big after a first quarter performance that saw the company report earnings of $2.71 per share on revenue that rose 6.6% year over year to $27.9 billion.
However, despite topping analysts earnings estimates Meta did report a nearly 18% drop in profit (albeit on tough comps) and its revenue total missed FactSet's consensus estimate. Meta reported a 4% increase in DAUs to 1.96 billion, just ahead of Wall Street consensus of 1.951 billion.
Despite the rebound, Meta is certainly nearing a crossroads as a company.
Last year Meta divided its company into two segments: Family of Apps, and Reality Labs.
The Family of Apps segment includes all of the company's moneymakers including Facebook, Instagram, WhatsApp, and Oculus.
Meanwhile, the other side of the company, Reality Labs, is all about the reason why we call the parent company Meta in the first place. It's all about the Metaverse.
The more you hear the executives talk about the Family of Apps the more it becomes clear that the legacy services are the past and present while Reality Labs is the future.
Meta knows the future of the company is in virtual reality, and the company took the bump in revenue it received during the pandemic and poured that into accelerating its own transformation.
"Based on the strong revenue growth that we saw in 2021, we kicked off a number of multiyear projects to accelerate some of our longer-term investments, especially in our AI infrastructure, business platform, and Reality Labs," CEO Mark Zuckerberg said during Meta's earnings call.
But now Meta cut its full-year GAAP spending guidance to between $87 billion and $92 billion, down from its previous guidance of between $90 billion and $95 billion.
While calling those investments "important for our success and growth over time," Zuckerberg also said that the company is "now planning to slow the pace of some of our investments" due to the company's "current business growth levels."
But there is evidence that it wasn't just the loss of the pandemic windfall that prompted Meta to ramp down its spending
Apple Is Slowing Down Meta's Transformation
Zuckerberg uses the advertising industry jargon term "signal loss" to describe what Apple's new iOS policy is doing to its algorithms as well as what it's doing to Meta's bottom line.
Signal loss is Meta's term for privacy enforcement with the signal being the data that Meta "needs to manage its core revenue stream, advertising," according to Princeton's Information Center for Technology Research.
Meta will still invest in its legacy business. The company has a three-pronged advertising strategy that includes growing video monetization (especially with short-form videos like Reels), and investing in AI and machine learning to make its targeted advertising even more accurate.
The middle prong of that strategy is "evolving" their advertising apparatus to "do more with less data."
Meta's CEO admitted that Apple's privacy push is a "meaningful headwind, but we also expect that with the right technology investments, we'll navigate okay over time."
That statement doesn't lend much confidence to the idea that this "signal loss" won't be a long term problem. It sounds like a minefield that the company will have to navigate around and live with.
Reality Labs Will Cost Money to Scale
Reality Labs generated $695 million in revenue in the most recent quarter, a 30% increase that was driven by sales of the Quest 2 virtual reality headset.
However, Reality Labs posted an operational loss of $2.96 billion, up from $1.83 billion during the same period in 2021.
That type of loss is creating friction for the company at a time when it is trying to tighten its belt, but Zuckerberg sees the losses as the cost of doing business when a company tries to build something from the ground up.
"Having those teams operating is something that you see weigh on the results and is one of the reasons why I think the growth rates and expenses have been so high," Zuckerberg said.
"And I think we'll continue investing more over some period, but at some point, we will have all those product teams fully staffed for a few versions into the future and then the growth rates there will come down."
