Facebook parent
Meta Platforms Inc.
startled investors with a sharper-than-expected decline in profits and a gloomy outlook in its first earnings report since Chief Executive
Mark Zuckerberg
outlined a pivot to the metaverse.
Meta shares plunged after the results were announced, dropping more than 20%. If shares dropped that much when trading opens on Thursday, it would wipe more than $175 billion from the tech giant’s market capitalization.
The company said it expected revenue growth to slow because users were spending less time on its more lucrative services. Meta cited inflation as a weight on advertiser spending and estimated that ad-tracking changes introduced by
Apple Inc.
last year would cost Meta some $10 billion this year.
Meta also lost about a million daily users globally and stagnated in the U.S. and Canada, two of the company’s most profitable markets, the results show.
The results show Facebook’s business under pressure on a number of fronts at a moment when Mr. Zuckerberg is betting the company’s future on VR headsets, AR glasses and virtual worlds, known as the metaverse, in which users can live and work.
“Although our direction is clear, it seems that our path ahead is not quite perfectly defined,” Mr. Zuckerberg told investors during a conference call Wednesday.
Meta executives said they expected first-quarter revenue between $27 billion and $29 billion, representing year-over-year growth between 3% and 11%. Anything below 11% would mark the slowest period of quarterly growth in the company’s history.
Mr. Zuckerberg said the company is investing heavily in its TikTok rival, called Reels, and focused on attracting young-adult users, although those segments aren’t currently as profitable as others. Reels doesn’t make the kind of money that Meta generates on older features such as the news feed and Stories, which allows people to post videos and images that disappear after 24 hours.
“I’m confident that leaning harder into these trends is the right short-term trade-off,” he said, noting that Reels is the company’s fastest-growing product.
Executives likened the shift to Reels to the company’s prior strategic transitions, including its shift to mobile from web about a decade ago and the more recent embrace of Stories.
Meta faces multiple antitrust investigations around the world, for what some government officials describe as its pattern of using its clout to squeeze out smaller rivals. During the call, Mr. Zuckerberg and other executives repeatedly emphasized that Meta faces stiff competition from TikTok for users’ time, particularly the younger demographic.
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Meta’s results were in contrast to fellow digital-ad giant and Google parent Alphabet Inc., which on Tuesday reported blockbuster results that sent shares climbing more than 7% on Wednesday.
Meta executives said the company is working at a disadvantage because of Apple’s changes that require apps to ask users for permission to track their activity and share it with other apps or websites. The move has been at the center of an intensifying fight between the iPhone maker and companies such as Meta that use such tracking technology to sell digital ads.
“It’s not really apples to apples for us. And as a result, we believe Google’s search ads business could have benefited relative to ours,” said Meta Chief Financial Officer
David Wehner.
Mr. Wehner also pointed to Apple’s business relationship with Google, adding that “the incentive clearly exists for this policy discrepancy to continue.”
The company reported a $10.3 billion profit for the fourth quarter, below analyst expectations of $10.9 billion and a small decline compared with a year earlier. The decline marked Meta’s first in net income growth since the second quarter of 2019.
Meta also for the first time broke out its Reality Labs segment, which offered investors insight into the health of the virtual- and augmented-reality consumer business unit that is at the heart of the metaverse efforts.
The Facebook Files
A series offering an unparalleled look inside the social-media giant’s failings—and its unwillingness or inability to address them.
The Reality Labs unit posted a $3.3 billion loss, an amount that has grown consistently in recent quarters.
Upon announcing the name change in October, Mr. Zuckerberg said that the company expected “to invest many billions of dollars for years to come before the metaverse reaches scale.”
Investors said the pairing of slower revenue growth with higher spending on initiatives like the metaverse is a troubling combination. “I’m going to spend a lot of time creating this new thing and I’m getting less revenue: It’s not a match made in heaven,” said
Kim Forrest,
chief investment officer of investment firm Bokeh Capital.
The latest earnings come as Meta continues to face criticism from lawmakers and users over revelations in The Wall Street Journal’s “Facebook Files” series, which showed that the company knows its platforms are riddled with flaws that cause harm. Those articles spurred congressional hearings, prompted a rebuke from Facebook’s own oversight board and led the company to halt work on a version of its Instagram app focused on children.
The company has also endured a series of executive departures in recent months. Most notably, Chief Technology Officer
Mike Schroepfer,
head of Facebook’s cryptocurrency efforts
David Marcus
and the head of the company’s Messenger unit,
Stan Chudnovsky,
all announced their exits in the last months of 2021.
Write to Deepa Seetharaman at Deepa.Seetharaman@wsj.com and Salvador Rodriguez at salvador.rodriguez@wsj.com
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