Facebook plunges on falling profits and weak growth prospects

Facebook suffered a sharp drop in profits after Mark Zuckerberg’s expensive ‘metaverse’ bet hit its bottom line, with shares tumbling more than 22% in after-hours trading.

Meta, the new corporate name of the social media giant, revealed that profits fell 8% to $10.3bn (£7.8bn) in the final quarter of last year, even as revenue was up 20% to $33.6 billion.

If shares fall at the same pace when markets open in New York on Thursday, Facebook’s parent company will have about $180 billion wiped out of its value.

Meta’s figures came after shares of payments giant PayPal fell 25%, knocking its value more than $50 billion, after significantly missing Wall Street’s growth forecast.

PayPal revealed worse-than-expected forecasts for the start of the year and said it had deleted millions of illegitimate accounts.

The numbers stand in stark contrast to Big Tech rivals Google, Apple and Microsoft which have all revealed huge gains in earnings in recent days.

Shares of Alphabet, Google’s parent company, soared 10% to see the company briefly regain a valuation of $2 trillion it last reached in November.

On Wednesday, however, the market was disappointed by Meta’s forecast for the first quarter of 2022, when growth is expected to slow significantly.

Revenue is expected to rise 3-11% to $27 billion to $29 billion.

CFO David Wehner said Meta faces “increased competition for people’s time” as users shift to short-form video content, which offers fewer opportunities for monetization compared to social media feeds.

Trading will also be compared to a strong period last year, when demand for social media was stronger amid global lockdown, while cost inflation and supply chain disruptions hit the budgets of companies. advertisers.

Last year, Mr Zuckerberg announced plans to spend $10 billion to develop the Metaverse in the hope that humans will spend much more time in immersive digital worlds and virtual reality (VR) in the future. .

He has focused his company on the concept, a move skeptics say is designed to distract from the many political scandals and investigations it faces.

Wednesday’s figures, the first since Mr Zuckerberg announced that Facebook was changing its name to Meta in October, also saw the company reveal revenue from its VR division, Reality Labs.

He said the unit’s sales fell from $717 million to $877 million in the same period last year, although losses climbed to $3.3 billion from $2 billion.

Despite the company’s growing interest in the metaverse, its social networks, Facebook and Instagram, are expected to be the main source of income and the main concern of investors for several years.

Meta said Facebook now has 3.6 billion monthly active users, up 9%, and 1.9 billion people use it every day. In the “family” of Facebook, Instagram and messaging app WhatsApp, it now has 3.6 billion monthly active users.

Mr. Zuckerberg said, “We had a strong quarter as people turned to our products to stay connected and businesses continued to use our services to grow.

“I am encouraged by the progress we have made over the past year in a number of important growth areas such as Reels, Commerce and Virtual Reality, and we will continue to invest in these key priorities and others as they arise. 2022 as we work to build the metaverse.”

Shares of Meta have fallen in recent months, alongside other tech companies, as inflation, rising interest rates and the waning impact of Covid-19 will end the tech boom seen during the pandemic.

Slowing earnings are likely to spook investors, as Facebook has largely generated reliable growth since its IPO in 2012. It reported a drop in profits in 2019, when it was sentenced to a $5 billion fine by US authorities over the Cambridge Analytica scandal, and in 2015 when the company also went on a spending spree.

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