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Meta’s metaverse business is losing billions, but Mark Zuckerberg says it’s all part of the plan

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Meta, formerly known as Facebook, saw its stock jump as much as 18% on Thursday after posting strong quarterly earnings. But the company’s metaverse business, Reality Labs, continued to struggle in the first three months of the year, losing $2.96 billion.

The most recent losses follow an over $10 billion spending spree by the metaverse unit in 2021, but CEO Mark Zuckerberg isn’t worried. He says it’s all part of the plan to build the metaverse over the next decade.

“While we’re focusing on the biggest opportunities and challenges of today, I think it’s important to build the foundation for the next era of social technology as well,” Zuckerberg said during an earnings call on Wednesday, referencing the company’s virtual reality social platform called Horizon Worlds.

Meta rolled out a VR application of Horizon Worlds, which Zuckerberg calls the “centerpiece” of his metaverse strategy, in December, but the social media platform has yet to meaningfully contribute to revenue. The company also plans to release a web version of Horizon Worlds later this year to let users without VR headsets experience its offering.

“It’s not going to be until those products really hit the market and scale in a meaningful way, and this market ends up being big, that this will be a big revenue or profit contributor to the business,” Zuckerberg said. “This is laying the groundwork for what I expect to be a very exciting 2030s.”

Still, Zuckerberg admitted that because of rising metaverse investments, Meta’s overall profitability won’t be as strong as it otherwise could be in 2022.

“I recognize it’s expensive to build this. It’s something that’s never been built before,” he said, conceding that it will take longer for the metaverse to add to revenue growth than many of the company’s other previous services.

Despite the losses in Meta’s metaverse unit, a number of top investment banks said the company’s earnings report on Wednesday was impressive. UBS analysts, led by Lloyd Walmsley, raised their price target for Meta by $10 to $310 per share on Thursday, and maintained their “buy” rating, arguing the company has demonstrated a commitment to profit growth.

It’s a commitment that was evidenced by standout first-quarter earnings per share, which, at $2.72, topped analysts’ consensus estimates by 20 cents, despite Reality Labs’ losses

Facebook’s daily active users, which declined for the first time in 18 years in the final quarter of 2021, bounced back as well, rising from 1.93 billion to 1.96 billion. 

UBS also pointed to impressive growth in Meta’s short-form video segment on Facebook and Instagram, called Reels, as evidence of potential future revenue growth and an ability to fight off the likes of Tik-Tok in the social media arms race. Reels now accounts for roughly 20% of the time users spend on Instagram.

Wall Street continues to be mostly bullish on the metaverse as well, with some top analysts and hedge fund managers arguing it’s the most important invention since the iPhone and will end up being worth trillions.

“I’m just trying to lead the company in a way where we’re positioning ourselves as the premier company for building the future of social interaction and the Metaverse,” Zuckerberg said.

Source: www.fortune.com

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