Meta shares plummet 20% after posting rare profit decline

By Clare Duffy, CNN Business

Facebook rattled investors on Wednesday by posting a rare profit decline, driven by the company’s heavy spending on its vision for a so-called metaverse while simultaneously confronting advertising challenges on its existing services.

The company, formerly known as Facebook, posted net income of nearly $10.3 billion in the final three months of last year, a decline 8% from the same period in the prior year and below Wall Street analysts’ projections.

The profit decline comes as Meta invests heavily into the VR and AR technologies it believes will help build the metaverse, a so-far-just-conceptual immersive form of the internet that CEO Mark Zuckerberg has identified as the company’s future. At the same time, Meta is combating a change to Apple’s iOS that has weighed heavily its core advertising business.

Meta’s shares plunged as much as 22% in after-hours trading following the report.

Meta posted a more than $10 billion loss for the year in its AR and VR unit, Reality Labs, the first time it has reported financials for the unit. CFO Dave Wehner had previously warned that investments in Reality Labs would reduce the company’s overall operating profit in 2021 by about $10 billion. The unit brought in only $2.3 billion in revenue during the year.

“Investors will look at these numbers closely as a first indicator of how far off the Metaverse is from being a profitable reality,” Tom Johnson, global chief digital officer at media agency Mindshare Worldwide, said in emailed commentary.

Meta also reported slowing growth in its core advertising business, which still makes up around 99.5% of its total revenue. Advertising revenue grew 20% year-over-year — its slowest growth rate for the year — to $32.6 billion, as the iOS changes made targeted advertising more difficult. The company also failed to grow its daily or monthly active user bases on Facebook from the third quarter, an usual miss for the company.

The company also shared a rough forecast for the upcoming quarter, saying it expects revenue to grow only between 3% and 11% due to “headwinds to both impression and price growth” in its advertising business. It added that its platforms face increased competition for people’s time, and that users have shifted toward engaging more with video products like Instagram Reels, which are harder to monetize.

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