Shares of Facebook’s parent company Meta Platforms (META) are brewing as the tech company spends money making virtual reality hardware, raising awareness and finding friends for a future in the metaverse.
Its clients’ advertising budgets are tightening as companies restructure costs amid macro challenges — leading even one optimistic analyst to say the third quarter for Meta Platforms is “make or break.”
“I think the stock has come back to questions about, really, fundamental fundamentals,” Mark Shmulik, principal analyst at AB Bernstein, told Yahoo Finance. “People can understand that it’s [the metaverse] as a longer-term initiative. I imagine investors would like it if they spent a lot less there.”
Advertisers tend to drive digital marketing campaigns where the biggest audiences, targeting capabilities and conversion rates reside – for a decade, Meta affiliates, Facebook and Instagram, have been that place. Business budgeting during times of macroeconomic uncertainty makes the value of advertising spend through realized sales even more paramount.
“The macro environment continues to deteriorate. We believe many advertising-focused companies will miss fourth-quarter earnings,” Needham principal analyst Laura Martin told Yahoo Finance. “And in the case of Meta, not only is the macro environment deteriorating, but they’re wasting a lot of user time because of TikTok. And it keeps happening.”
According to a study conducted by Piper Sandler, TikTok is the favorite social media app for teenagers and the margin has only widened for the Bytedance-owned company compared to Facebook and Instagram.
“I think Mark Zuckerberg is telling us he doesn’t think he has a core business,” Martin said. “He’s moving to Reels because he’s competing with TikTok. He’s moving to the metaverse, and he’s changed the name of that company, which tells me he no longer thinks his core business he has built 15 years ago is no longer a business.”
Find legs in the metaverse
Facebook spent $10 billion in 2021 in early efforts to build the Metaverse, and Mark Zuckerberg informed shareholders in 2022 that the company will continue to spend heavily to build the Metaverse and will bleed cash for three to five years.
The big bet may be an overreliance on Meta’s ability to sell metaverse experiential material and a reason for being there.
“If you look at the motivations behind it, we’ve been through these changes in the past from desktop to mobile,” Shmulik said. “And so they [Meta] understand that at some point there will be another IT platform change. They don’t want to be stuck in the application layer.”
At Meta Connect, Facebook Founder and CEO Mark Zuckerberg showed off a $1,500 VR headset, with the prevailing plan that a suite of familiar workplace collaboration apps could kickstart engagement in the workplace. metaverse.
Accenture, Zoom and Microsoft also announced a metaverse partnership with Meta platforms. Microsoft is offering an important friend in virtual reality with a commitment to bring its productivity tools and gaming cloud technology to the experience.
“I think what he’s talking about in terms of changing the world of consumer computing is really innovative and interesting and risky, but bringing in the CEO of Microsoft and Accenture yesterday? Great – says he d ‘great business partners,’ said Martin. . “And I don’t think consumers want to pay $1,500. I think that’s the exception. But I think Accenture can pay to buy thousands of glasses at $1,500.”
Brad Smith is a Presenter at Yahoo Finance. Follow him on Twitter @thebradsmith.
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