Metaverse hampers Meta’s recovery

A few months ago, socialnetwork company Meta was regarded as “bloated”, with sales sliding, users departing and the shares collapsing, says Danny Fortson in The Sunday Times. Today, the stock has nearly tripled from its November low following a return to growth.

True, sales growth remains “pedestrian” at just 3%, especially compared with the “go-go years” where “30% quarterly growth was unfurled with metronomic consistency”. However, investors are confident that CEO Mark Zuckerberg’s “cost-cutting plan” will “deliver fatter profits even as growth slows”. They also think that Meta’s use of artificial intelligence (AI) will “not just grow the number of users, but keep them on its apps”.

Meta’s increasing sales provides evidence that it “is weathering what could become a difficult advertising environment”, good news given that “nearly all of the money the company makes comes from that business“, says Anita Ramaswamy on Breakingviews. Still, “in order to grow ads by 26%, the company had to slice the average price per ad by 17%”, which “suggests Facebook can’t command as much of a premium for eyeballs as it previously could”. What’s more, while AI-based recommendations “have already increased the amount of time users spent on Facebook and Instagram and boosted ad sales”, Zuckerberg’s obsession with the metaverse means that “his attention – and cash – is divided between two new endeavours in a way that his competitors’ are not”.

Zuckerberg’s insistence on pursuing both AI and the metaverse means that Meta’s research and development (R&D) spend in the first three months of the year eclipsed $9bn, a third of sales and “twice as high as Alphabet and Microsoft”, says Lex in the Financial Times. The numbers coming out of Reality Labs, its virtual reality business, are particularly “ugly”, with the unit posting “an operating loss of almost $4bn. For now, at least, “the idea of the metaverse as integral to our social and work lives is a bust”.