To TheStreet’s Kevin Curran, the metaverse is a forest while Meta Platforms FB (formerly Facebook) is a tree.
That’s okay, he said. After all, money grows on trees.
“After the newly renamed Meta Platforms posted a massive miss on earnings, driven by heavy investment in money losing metaverse efforts, there’s good reason for investors bullish on the metaverse narrative to get nervous,” Curran wrote recently on Real Money.
That’s understandable, as it’s not often that a company of Meta's size sees such a significant single-day decline.
Yet, the issue is far larger, Curran noted. “In fact, Meta's inauspicious earnings release, driven in large part by the metaverse that prompted the name change, holds implications for the future of many other firms banking their future on metaverse aims,” he said.
In the very first breakdown of virtual reality initiatives offered to investors, the company's Reality Labs division that heads up this push was shown to be hemorrhaging cash. All in all, the unit lost about $10.2 billion in 2021, with losses accelerating into the current quarter.
“While losses in the March quarter came in at $1.8 billion, that ballooned to $3.3 billion by the fourth quarter,” Curran said. “That trend does not look as though it’s subsiding at all, either.”
CEO Mark Zuckerberg has gone to great lengths to emphasize that profits are a long way off. “He noted explicitly in his prepared remarks on the earnings call,” Curran said. “For bulls on the metaverse, this long-term view is the crucial factor keeping hopes alive.”
Per Bloomberg, the Facebook front man called an all-hands-on-deck meeting last Thursday to discuss the abysmal earnings release. “Teary-eyed, the CEO encouraged his team to focus on short video content to compete with ByteDance's (BDNCE) TikTok, Alphabet's (GOOGL) increasingly successful shorts, and Snapchat (SNAP),” Curran said.
The question for investors now, however, is whether this move to focus on the metaverse is motivated by opportunity or desperation.
“Given Meta Platforms unparalleled spend on metaverse buildout, its role as a bellwether remains worth watching, even for investors that avoid the individual stock,” Curran said. “In the end, it could portend prescient opportunities or woefully misplaced confidence in paradigmatic shifts.”
“It appears only time will tell if investments in the virtual world can bring real returns,” he added.
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