Facebook parent company meta platforms (GOAL) stocks are cooking as the tech company spends money making virtual reality hardware, raising awareness and finding friends for a future in the metaverse.
Its clients’ advertising budgets are tightening as companies restructure costs amid macroeconomic challenges, even leading one optimistic analyst to call Meta Platforms’ third quarter ‘win or miss’.
“I think equities have gone back to fundamental fundamental questions,” Mark Shmulik, a senior analyst at AB Bernstein, told Yahoo Finance. “People can understand that this is [the metaverse] as a longer-term initiative. I imagine investors would love it if they spent a lot less on it.”
Advertisers tend to run digital marketing campaigns where the largest audience, targeting capabilities, and conversion rates reside; For a decade, Meta subsidiaries Facebook and Instagram have been that place. Corporate budgeting during macroeconomic uncertainty makes experiencing the value of ad spend through realized sales even more important.
“The macro environment continues to deteriorate. We think a lot of advertising-driven companies will lose their fourth-quarter earnings,” Laura Martin, a senior analyst at Needham, told Yahoo Finance. “And in the case of Meta, not only is the macro environment deteriorating, but I’m losing a lot of user time with TikTok. And that keeps happening.”
According to research by Piper Sandler, TikTok is the favorite social media app among teens and the margin has only widened for the Bytedance-owned company compared to Facebook and Instagram.
“I think Mark Zuckerberg is telling us that he doesn’t think he has a core business,” Martin said. “He’s moving to Reels because it competes with TikTok. He’s moving into the metaverse and he’s renamed this company, which tells me he no longer believes his core business that he built 15 years ago is actually a business.”
Finding legs in the metaverse
Facebook spent $10 billion in 2021 on early efforts to build the metaverse and Mark Zuckerberg informed shareholders in 2022 that the company will continue to spend heavily to build the metaverse and lose money for three to five years.
The big bet may have an inordinate reliance on Meta’s ability to sell experiential metaverse hardware and a reason to be there.
“If you take a look at the motivations behind it, we’ve been through these changes in the past from desktop to mobile,” Shmulik said. [Meta] I understand that, at some point, there will be another change of computing platform. They don’t want to get stuck in the application layer.”
At Meta Connect, Facebook founder and CEO Mark Zuckerberg unveiled a $1,500 VR headset, with the prevailing plan being that a suite of familiar workplace collaboration apps could drive engagement in the metaverse.
Accenture, Zoom, and Microsoft also announced a metaverse partnership with Meta Platforms. Microsoft offers an important friend in virtual reality with a commitment to bring its gaming cloud technology and productivity tools to the experience.
“I think what you’re talking about in terms of changing the world of consumer computing is really innovative and interesting and risky, but bringing in the CEO of both Microsoft and Accenture yesterday? Great, you say you have great business partners.” Martin said. . “And I don’t think consumers want to pay $1,500. I think that’s the exception. But I think Accenture can afford to buy thousands of $1,500 glasses.”
Brad Smith is an anchor at Yahoo Finance. Follow him on Twitter @thebradsmith.
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