Overnight trading wipes $65bn from value of Facebook and Instagram owner
More than $65bn has been wiped off the market value of Facebook and Instagram’s owner, Meta, after it reported profits had halved during the third quarter of the year as advertisers rein in spending amid the global economic downturn.
The 19% tumble in Meta’s share price during after-hours trading knocked a further $10bn off the personal wealth of the company’s chief executive, Mark Zuckerberg, who founded Facebook while he was at university.
Zuckerberg, who is Meta’s largest shareholder and has most of his fortune in the company’s shares, had already seen his net worth plummet by at least $70bn by September this year.
Meta, which owns Facebook and WhatsApp, reported $27.7bn in revenue for the third quarter – higher than analysts’ forecasts – as sales shrank by 4% compared with the same period a year earlier.
It came as the company, which has poured investment into its virtual reality project, the metaverse, warned of weaker trading ahead.
Amid growing competition from TikTok, Meta is also suffering as companies cut back on advertising spending.
Meta’s results were the latest in a series of disappointing earnings reports. The company has invested heavily in new products that have so far failed to bear fruit. It lost $230bn in market value in February in the biggest one-day loss in history for a US company, after its shares slumped by 26%.
Meta’s costs and expenses climbed by 19% in the third quarter compared with a year earlier, as a result of spending on the metaverse and in its shortform video-content product Reels.
Reality Labs, its metaverse division, made a $3.7bn loss over the past three months, while the company said it anticipated these losses would “grow significantly year over year” in 2023.
Faced with concern from investors about the losses, Zuckerberg said he was confident that spending on the metaverse and other “experimental bets” would begin to pay off.
“Over time, these are going to end up being very important investments for the future of our business,” Zuckerberg said.
“This is some of the most historic work we’re doing. People are going to look back on [this] decades from now and talk about the importance of the work that was done here.”
He added: “While we face nearterm challenges on revenue, the fundamentals are there for a return to stronger revenue growth.”
Meta and other tech companies have been hit by fears of recession and rising inflation. Google’s parent company, Alphabet, and Microsoft have also disappointed investors with third-quarter results.
In addition, Meta has struggled with changes to Apple privacy policies enacted in 2021 that undercut its primary advertising model – which the company predicted would cause it to lose out on a projected $10bn in advertising revenue in 2022.
Splitting up Facebook’s business from its metaverse project could be one way to restore the company’s share price, according to Sir Martin Sorrell, founder of digital advertising company S4 Capital.
“If you manage to split Reality Labs, where the investment is being made in the metaverse, from the Facebook and Instagram platforms … If you split those two businesses you might have a very different market result and you probably would see an accretion in the value of Facebook platforms,” Sorrell told BBC Radio 4’s Today programme.
Meta hinted at job cuts, after first announcing a staff hiring freeze and potential restructuring in September.
The company said it would be “holding some teams flat in terms of headcount, shrinking others and investing headcount growth only in our highest priorities”.
It added: “As a result, we expect headcount at the end of 2023 will be approximately in-line with third quarter 2022 levels.”
Meta has also forecast a drop in revenue for the year, its first since it floated on the stock market in 2012.
Its third-quarter losses indicated Meta had focused too intently on new ventures, said Debra Aho Williamson, an analyst with Insider Intelligence.
“Meta is on shaky legs when it comes to the current state of its business,” she said. “To return to stronger growth, Meta needs to turn its business around. It would benefit from less priority on the metaverse and more on fixing its core business.”