The metaverse pivot of Mark Zuckerberg is slow to start. According to the fourth-quarter earnings report, Meta has lost just over $10B on its Reality Labs division by 2021.
Zuckerberg stated that Meta’s fully-realized vision was still far off. “And even though the direction is clear,” Zuckerberg stated about Meta’s metaverse investments. He said that the company would launch a new “high-end” VR headset and a mobile version of its Horizon VR experience.
This is the first time that the company has publicly shared the financial results of the AR/VR division, which is central to its metaverse ambitions (Facebook bought Oculus in 2014. It’s not surprising that the metaverse hasn’t turned a profit yet. According to the company last quarter, its AR and VR investments would lead to a $10 billion loss. However, Meta’s fourth-quarter results combined with stagnant user growth and continued hits in its advertising business led to Meta’s stock going down Wednesday.
One of the biggest concerns is that Facebook’s daily active user (DAU) dropped from 1.93 billion to 1.92 billion in the last quarter. Zuckerberg blamed this change on TikTok’s increased competition. Zuckerberg stated that “We are in the middle” of a transition to short-form video using our own services. Reels is our fastest-growing content format.” Zuckerberg said, but Reels does not yet monetize as well Stories or feeds. Facebook founder Mark Zuckerberg stated last quarter that it would prioritize attracting young adults between 18 and 29 years old. Facebook is reorienting its platform around short-form video in order to compete with TikTok. Reels are growing strongly, but Facebook’s overall user growth indicates that the feature isn’t reaching the new users Zuckerberg hopes to attract.
In the next months, Facebook’s revenue growth will slow. Although its ad business remains extremely profitable, it earned $32.6 billion last quarter, the company warns that Apple’s iOS14 privacy changes could have a significant effect on the next quarter. Sheryl Sandberg, COO of Facebook, stated that the accuracy of ads targeting had decreased, which has led to higher costs for driving outcomes. Zuckerberg stated that improving Facebook’s ads despite Apple changes was one of Facebook’s top priorities and that it was “rebuilding many of our ads infrastructure.”
Apple’s changes to ad targeting could prove as costly as its metaverse investments. “We believe that the overall impact of iOS as a headwind for our business in 2022 will be on the order $10 billion,” Dave Wehner, CFO, stated. It’s a significant headwind for our business.