Meta Platforms (META) shares look set for their biggest single-day decline in nearly nine months after the social media group posted weaker-than-expected second quarter earnings and cautioned that its metaverse division would post deeper net losses over the coming year.
Meta said it would "meaningfully" ramp-up investments in Reality Labs, the division that will house the company's metaverse plans and has absorbed more than $9.4 billion in losses over the first nine months of the year, as the social media group continues to transition from its Facebook roots.
The choice to double-down on the expensive enterprise, which will add at least another $4 billion to next year's capital spending plans -- now pegged at between $30 billion to $34 billion for the coming year -- more than offset some modest positives from Meta's underlying social media business and looks to extend the stock's near 70% year-to-date decline at the start of trading.
Third quarter profits fell 49% from last year to $1.64 per share, missing Street forecasts by 15 cents, while revenues fell 4% to $27.71 billion. Ad impressions rose 17%, Meta said, although the average price per ad was down 18%.
Looking into the final three months of the year, Meta said it sees revenues in the region of $30.0 billion to $32.5 billion, a range that fall under the Street forecast of $32.3 billion.
Monthly active users across Meta's 'Family of Apps' were tabbed at 2.96 million, up 2% from last year, while daily active users hit a modestly better-than-expected total of 1.98 billion.
"As I've shared before, our goal is to grow Family of Apps operating income, such that even with our AI infrastructure and Reality Labs investments, we can still meaningfully grow our overall company operating income in the long run," CEO Mark Zuckerberg told investors on a conference call late Wednesday.
"We do anticipate that Reality Labs operating losses in 2023 will grow significantly year-over-year. Beyond 2023, we expect to pace Reality Labs investments such that we can achieve our goal of growing overall company operating income in the long run," he added.
"There are a lot of things going on right now in the business and in the world -- there's a lot of competition. There's ads challenges, especially coming from Apple -- I think we're going to resolve each of these things over different periods of time," Zuckerberg said. "And I appreciate the patience. And I think that those who are patient and invest with us will end up being rewarded."
Meta shares were marked 24.3% lower in late afternoon trading Thursday to change hands at $98.27 each. The move would the biggest single-day decline since February 2 and carve nearly $90 billion from the group's market value.
"While we acknowledge the significant investment cycle, tough macro conditions, privacy headwinds, and growing competition for users’ time and ad budgets, engagement remains healthy and the company is making progress with Reels monetization," said JMP Securities analyst Andrew Boone, who carries a 'market perform' rating with a $150 price target on the stock.
"This as we continue to expect VR to be the next compute platform and view Meta as a leader within AI as it incorporates these recommendations into more products," he added. "Simply put, results are disappointing, but with shares down 70%+ from the 52-week high, we believe these risks are more than priced-in."
