PALO ALTO – Facebook parent Meta Platforms on Wednesday forecast a weak holiday quarter and significantly more costs next year, sending shares diving nearly 20 per cent as investors voiced scepticism about the company’s pricey metaverse bets.

The forecast knocked about US$67 billion (S$94 billion) off Meta’s stock market value in extended trade, adding to the more than half a trillion dollars in value already lost this year.

If Meta’s after-hours stock rout is matched in Thursday’s trading session, it will have been its deepest one-day loss since Feb 2, when the company last issued a dismal forecast.

It reported a 4 per cent drop in revenue for its third quarter to US$27.7 billion, from US$29 billion a year earlier. Net income plunged 52 per cent to US$4.4 billion from a year earlier, while spending soared by 19 per cent.

More troubling was its estimate that revenue for the holiday season fourth quarter would be in the US$30 billion to US$32.5 billion range, mostly under analysts’ estimates of US$32.2 billion, according to Refinitiv data.

The disappointing outlook comes as Meta is contending with slowing global economic growth, competition from TikTok, privacy changes from Apple, concerns about massive spending on the metaverse, and the ever-present threat of regulation.

The company’s metaverse investments remained troubled. Meta said its Reality Labs division, which is responsible for the virtual reality and augmented reality efforts that are central to the metaverse, had lost US$3.7 billion compared with US$2.6 billion a year earlier. It said operating losses for the division would grow “significantly” next year.

Meta also forecast that operating losses associated with Reality Labs would grow in 2023 and pledged to “pace” investments after that.

Executives announced plans to consolidate offices and said Meta would keep headcount flat to the end of 2023.

Meta also forecast that its full-year total expenses for 2023 would be US$96 billion to US$101 billion, significantly higher than a revised estimate for 2022 total expenses of US$85 billion to US$87 billion.

‘Experimental bets’

Meta is carrying out several overhauls of its apps and ads products to keep its core business pumping out profits, while also investing US$10 billion a year in a bet on metaverse hardware and software.

Chief executive Mark Zuckerberg has said he expects the metaverse investments to take about a decade to bear fruit. In the meantime, he has had to freeze hiring, shutter projects and reorganise teams to trim costs.

An analyst on the investor call told Mr Zuckerberg that investors were worried that the company had taken on “just too many experimental bets” and asked the CEO why he believed his gambles would pay off.

Meta executives defended the spending, saying most of the company’s expenses were still going towards the core business, including investments in more expensive artificial intelligence-related servers, infrastructure and data centres.

Mr Zuckerberg added that he expected the metaverse work to provide returns over time.

“I appreciate the patience,” he said. “And I think that those who are patient and invest with us will end up being rewarded.”

Mr Zuckerberg said that plays of Reels, Meta’s TikTok-like short-video product, now numbered more than 140 billion across Facebook and Instagram each day, up 50 per cent from six months ago, and its revenue run rates were now US$3 billion annually.

He believed Reels was gaining against TikTok, he added, with Reels being reshared more than one billion times a day.

Meta also posted user growth figures roughly in line with expectations, including a year-over-year increase in monthly active users on flagship app Facebook.

“The worry for Meta is that this pain is likely to continue into 2023 as cost headwinds remain a real challenge and the strong dollar impacts on overseas earnings,” said Mr Ben Barringer, equity research analyst at Quilter Cheviot.

“Given that revenues are down at a time when costs have grown significantly, modest user growth and impressions simply are not going to bail you out.” REUTERS, NYTIMES