It was a rough day to be Mark Zuckerberg.
For the second time in 2022, Meta suffered a value destruction event of historic proportions, as investors and analysts recoiled at the sight of a second consecutive quarterly revenue decline and ballooning losses tied to Zuckerberg’s metaverse ambitions.
To quickly recapitulate, losses in Reality Labs topped $3.6 billion in Q3, revenue in the virtual reality unit missed estimates badly and company-wide profits halved, while expenses are now expected to be as high as $101 billion in 2023.
A year on from Zuckerberg’s metaverse pivot, the gamble looks increasingly ill-conceived. As of Thursday afternoon in the US, the company was valued at less than $260 billion. At the peak, that figure was almost $1.1 trillion.
To be sure, Meta is a victim of circumstance. Like all high-growth tech companies, the shares were undercut this year by the most aggressive Fed tightening campaign since Paul Volcker. That’s not to make excuses for Zuckerberg, it’s just to state what I hope is obvious: If there were no “Meta” and the company was still called “Facebook,” the shares would still be down sharply in 2022.
That said, Meta now has the dubious distinction of occupying two of the top ten spots on the list of largest one-day value destruction events. Thursday’s market cap loss was on track to easily exceed Netflix’s $54 billion plunge on April 20 (figure below).
If you wanted to summarize the kind of year it’s been for Meta with one statistic, you might note that the company’s historic $250 billion implosion following earnings in February was larger than the current market cap of the entire company.
You can conjure an endless list of mind-boggling statistics, starting with the obvious: Zuckerberg is on the fast track to going broke.
Scoff as you will. But one way to visualize “broke” is a chart depicting the evolution of one’s net worth. When the line is falling, you’re technically going broke, were the “going” just means your net worth is moving in the direction of less money. If you go too far in that direction, you’ll have no money, or next to no money.
With that in mind, note that the last time Mark was worth less than $39 billion at the close of a business day was in August of 2015 (figure below). In the past year, Zuckerberg’s net worth has declined by one whole Warren Buffett.
On paper, Zuckerberg has lost an average of $256 million per day for 13 months running. A few more months like this, and he’ll be worth less than a handful of lowly hedge fund managers you’ve probably never heard of.
During the company’s Q3 call, Zuckerberg tried to calm frayed nerves, to no obvious avail. Below are a few representative soundbites from Mark:
So, I mean in the metaverse sense, a lot of the things that we’re trying to enable, right, this feeling of presence, which in a lot of ways is sort of the ultimate social experience when you do it physically or eventually when — as you’re doing it virtually, being able to design the hardwares, that way, you can have sensors that can help map your facial expressions and emotions to the avatar you have. Virtually, I think it’s going to be just a very profound experience. And you can start to experience that with Quest Pro, which is out now. And it’s just not clear if we weren’t driving this forward that anyone else would be.
In terms of metaverse efforts and kind of how we’re doing compared to what I expected, it’s a pretty wide portfolio of things that we’re working on, which I think is important to internalize because [all] most people see are the VR headsets, right. Because that’s sort of the first thing that we launched. There [are] four major platforms that we’re focused on developing. One is the kind of social metaverse platform. You see an early version of that with Horizon — with the avatar system. And that’s an area where we’re really iterating out in the open, right. It’s a kind of a live early product platform, and that’s evolving quickly, but obviously [it] has a long way to go before it’s what we aspire for it to be. But that’s one important area given what we do [as] sort of the social company — that’s about people interacting, how you express yourself in all forms, kind of express avatars, the photorealistic avatars. We think we’re doing some leading work there. VR is the second major platform. The two other areas, which are still internal, is a lot of the work on augmented reality, which is quite a large effort. But we think it’s going to be just a huge part of the value that gets created over time.
We think by the time you have glasses, and you’re kind of walking down the street with glasses, you’re not going to have controllers with that, you’re not going to want to have your hands kind of like hovering in the air, and you’re not always going to want to talk to the thing, even though that’s going to be one way that we use them a bunch of the time. Sometimes you’re going to want something that’s more private. So, we think that having a discrete way to basically communicate with the device is going to be critical.
I think this is going to be a very important thing, and I think it’d be a mistake for us to not focus on any of these areas, which I think are going to be fundamentally important to the future. I think it’s some of the most historic work that we’re doing that I think people are going to look back decades from now and talk about the importance of the work that was done here.
As noted here on Wednesday afternoon, following the release of Meta’s results, there’s just not a lot there for people to grab hold of. Unfortunately, there’s an embedded joke too: The metaverse isn’t, by definition, something you can get your hands on. Because it’s virtual. It isn’t tangible.
Mark said that Meta will “resolve” challenges “over different periods of time,” and then thanked analysts and investors for their patience. “I think those who are patient and invest with us will end up being rewarded,” he said.
That may be true, but at least some analysts were all out of patience on Thursday. Morgan Stanley downgraded Meta for the first time ever, and they weren’t alone. As for investors, the 23% plunge in the stock spoke for itself.
By market cap, Apple is now almost 10 times Meta’s size. The company is no longer among the world’s 20 most valuable. And Zuckerberg is no longer among the world’s 20 richest people.
“On paper, Zuckerberg has lost an average of $256 million per day for 13 months running….”
That is a truly mind-boggling stat.
“And it’s just not clear if we weren’t driving this forward that anyone else would be.”
this is such an obvious self-own it borders on satire.
I mean, doesn’t that tell him that there is no market for this? Otherwise he’d be facing at least SOME competition.
An important distinction between Apple and Meta, is that Apple has chosen to develop new products/frontiers behind closed doors- which, at least today, seems very smart.
It looks as if the timing of Sheryl Sandberg’s departure was a statement.
Apple hasn’t developed a truly new product in 7 years. At this point they are just borrowing from their competitors and branding it as some magic new technology.
Apple hasn’t developed a truly new product since around 1988. Do you think they actually invented the smart phone? They invented and patented the glass rectangle. Everything else was an assembly of existing technology in Apple’s little garden. Done well, I acknowledge.
It’s their innovation rather than true invention that sets them apart. There were MP3 players before the iPod, but none with such a simple single button click-wheel interface. Then they integrated it with iTunes, turning the product into a revenue stream rather than a one-time hardware sale. They didn’t invent smartphones, but were the first with a touch screen (and no physical keyboard). They didn’t invent headphones, but pioneered cordless Bluetooth ear buds.
I’m actually not a fan of Apple, but one of my worst calls ever has been to continuously disregard Apple’s prospects (especially in the late 90s > early aughts).
Funny how all those things things that looked like terrible decisions at the time are now lauded. None of these were things people were asking for, Apple just declared, “This is how it’s done now” and billions of people said, “We hear and obey.” No keyboard, nonremovable battery, etc. I remember when the iPod came out… it didn’t seem “simple” so much as “stupid”. I had an Archos at the time, which could record, ran on AA batteries so I had the option to use rechargables or not, and could even, if you were so inclined, be flashed with custom firmware for lots of advanced features. Who looked at that and said, “Yeah, but I’d rather have none of those features and just one button, and have to get RSI moving my thumb in circles for an hour to scroll, for twice the price”? The Archos sure looked like the future at the time.
I mean, look, Apple is worth what they’re worth while I’m worth what I’m worth, so I guess we know who’s right. But it still mystifies me.
I guess people really, really liked those recycled 1960s Braun product visual designs.
META and AAPL seem to be working on different usage cases for VR/AR.
META has been working on gaming and social usage. The gaming usage is already here, and a lot is done on META’s Oculus 2 goggle due to the accessible price ($400). The social usage is the awkward work-in-progress, but obviously you can’t grow a VR social ecosystem behind closed doors. AAPL’s intended usage case is working on is (are) unclear to me. Their AR goggle may not be suitable for VR gaming (cost, AR vs VR, AAPL and gaming seldom get along). It may not be usable in META’s VR social ecosystem, for obvious reasons. Other companies are focused on productivity, business, industrial, and technical uses. META’s Oculus Pro seems to be oriented there.
I think AR/VR will eventually be big with abundant opportunities for advertising and other revenue. Whether META will be “the”, or “a”, winner I don’t know. They have a big lead but it is still such early innings. Still, Reality Labs isn’t harming the Family of Apps business or its cyclical recovery, even if it is slashing META’s EBITDA to $50BN (rough 2023E). Value RL at zero and FoA at just 8X EV/EBITDA and META’s EV could be $400BN. At $264BN mkt cap, META discounts RL as worthless and FoA in such terminal decline such that its only worth 5-6X EBITDA. Just personal opinion.
I’m still trying to figure out why people think this is going to work out differently than Second Life.
It’ll be different from Second Life because SL was profitable.
Mark Zuckerberg called people who handed over their data “Dumb Fu–s.”
Well, in fairness, he was right. 🙂
This discussion tickles my funny bone. MZ was foolish in his thinking and careless in his calculation. But each of us is an island of awareness and understanding. Relative to other critters that still remain on the earth, we have “advanced” brain capacity and intelligence. Bully for us! Human intelligence is greater than swine!
Consciousness of our conscious is what really differentiates us from other earthly creatures. So said the philosophers I studied with at the university. We are able to evaluate our own thinking and weigh its value and usefulness. We can grow our intelligence and build accomplishments that magnify our visibility and enable value in the broader society. But our conscious capacity is limited. Our emotions and impulses can impact our capacity for critical thought, and result in less conscious and less careful actions on our part.
MZ’s judgement about the risk of this venture into alternate reality appears to have been an error. In a way it’s understandable. Succeeding in business requires passion and action, which he obviously had for this project. And he definitely applied himself in an effort to make it feasible.
In my perception, MZ is not the most sympathetic character, but I can understand his mistake. At the same time, I’m human. We’re all human. We all make misjudgments. But maybe not with the same dollar impact on our businesses.
I appreciated this @CgoDave. MZ is a human being, just like the rest of us.
I dunno, it seems to me he’s just been trying to find his second major success to prove he’s not a one-hit wonder. First it was those little tablet video phones, then it going to be Libra cryptocurrency, now it’s Second Life^h^h^h^h^h^h the Metaverse, next it’ll be, I dunno, a Facebook self-driving EV or something.
He’s assuming that people will flock in droves to don wearable devices and lose themselves in an alternate reality. Who knows, maybe they will. He’d better hope so. At this rate, he’s months away from the bread line.
Zuckerberg opinion on VR is totally off, there is no market. Meta is perpetuating societies problems with technology, we have become to reliant on it and it’s not in the future.
If I’m a major shareholder and you tell me, in confidence, that you’re secretly plowing money into a covert initiative to develop a Mission Impossible-style contact lens for the masses that’s going to bring the wonders of augmented reality and connectivity directly to consumers’ corneas or that you’re working on a metaverse project that combines Inception-style dream building and The Matrix into a literal alternate reality, then sure, I’m excited. If you tell me you’re working on Grand Theft Auto powered by crypto, physical headsets and ways for people to bring 3D modeling to Zoom meetings when you could be putting every ounce of energy you have into leveraging one of the most powerful datasets ever assembled, then we have a problem.
This.
But the thing is – don’t we need to go through the GTA (powered by crypto or not), physical headsets, 3D modeling in Zoom calls on our way to MI-style contact lenses and Inception-style dream building and the cyberspace of the Neuromancer?
The pendulum is swinging against leveraging that dataset, though. Privacy concerns that lagged the initial starry-eyed infatuation of new tech has begun to catch up. I don’t think it’s safe to assume that Facebook is going to be able to pursue that sort of tracking operation indefinitely — especially in a world where social media is ubiquitous and motivated by trends, not technology. Meta would have to just buy every competitor indefinitely, and again this is assuming that other phone manufacturers don’t follow Apple’s path. Is that sustainable? Especially given the rise of “hipster antitrust”?
If anything i think Mark is trying to recapture the early magic of Facebook, which allowed a type of technological connectivity you couldn’t get anywhere else. Some of his comments regarding the challenge and promise of being able to virtually replicate non-verbal communication is right on the money. Everything we do is communicative, from how we dress to how we move to how we frown. Being able to replicate all of that in a natural way will absolutely be revolutionary. It opens up the other half of our behavioural language that has been muted since the internet revolution began.
That said, the best question to ask is whether Meta is positioned to be the next “Facebook” of the metaverse, or if it’ll be the early-but-flawed Friendster or Myspace.
If management and BOD (including Marc Andreessen) are believers, now (as in as soon as legal under SEC rules) would be a good time to buy the stock.
The problem that Facebook has is they do not have platform they own. They are an app on some one else’s device which are owned by Apple, Microsoft, Google etc.. Mark want to create a new one and own it, it’s expensive and not guaranteed. It’s a race where they have to own a platform or get eaten by the giants.
Such colossal wealth destruction could not have happened to a better man.
I remember once there was this kid named Edsel…
Only 200,000 of the company’s more than 2 billion daily users have tried this for a month or more. Where will the money come from? Read “Snow Crash” and see what the creator of the ‘verse thought might well happen. And he didn’t think of putting in contacts.
Mr. Lucky, I have been reading more sci-fi, lately. Historically, I did not read much sci-fi and I had never heard of “Snow Crash”. From my quick Wikipedia read, it looks like a good story and also a currently relevant story.
Nester – it is a fun read. I read it when it came out around 1992 and had no idea how prescient it was. Amazing!
If you are pressed for time, just read the first 50-100 pages.
I’m just mystified by the sheer dollar amounts Meta is burning on Reality Labs. A typical AAA game budget is in the neighborhood of ~$300 million. But what we’ve seen so far of Meta’s ‘Verse is lower quality than what Second Life was capable of in 2003, and they’re burning through over $10 billion/year. Granted Meta is working on more than just their virtual world, but it’s still an astonishing amount of R&D for so little product.