Meta Quarterly Earnings: Profit Declines With Losses in Reality Labs

A year ago, Mark Zuckerberg changed Facebook’s name to Meta and said he was going all in on the immersive digital world of the so-called metaverse.

Since then, Meta has plowed billions of dollars into, and restructured itself around, the emerging technology — just as the global economy has slowed, inflation has soared and investors have begun paying more attention to costs.

The combination has been nothing short of disastrous. This year, Meta’s earnings have been hit hard by its spending on the metaverse and its slowing growth in social networking and digital advertising. In July, the Silicon Valley company posted its first sales decline as a public company. Its stock has plunged more than 60 percent this year.

On Wednesday, Meta continued that trajectory and indicated that the decline would not end anytime soon. It said it would be “making significant changes across the board to operate more efficiently,” including by shrinking some teams and by hiring only in its areas of highest priority.

The company reported a 4 percent drop in revenue for its third quarter — to $27.7 billion, down from $29 billion a year earlier. Net income was $4.4 billion, down 52 percent from a year earlier. Spending soared by 19 percent from a year earlier.

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 $3.7 billion compared with $2.6 billion a year earlier. It said operating losses for the division would grow “significantly” next year.

For the current quarter, Meta forecast revenue of between $30 billion and $32.5 billion, which would be down from a year ago. The company’s shares fell more than 11 percent in after-hours trading.

In a statement, Mr. Zuckerberg, Meta’s founder and chief executive, acknowledged “near-term challenges on revenue.” But he added that “the fundamentals are there for a return to stronger revenue growth” and that he was “approaching 2023 with a focus on prioritization and efficiency.”

The results exacerbate what has been one of the most tumultuous years for Mr. Zuckerberg and his company since Facebook remade itself as a mobile-oriented company a decade ago. Over the past few months, Meta has frozen most hiring, reduced budgets and begun identifying low-performing employees, indicating the possibility of layoffs. In June, Mr. Zuckerberg said on a call with employees that “there are probably a bunch of people at the company who shouldn’t be here.”

Meta’s financial difficulties stand out because of its size and its position as one of the world’s foremost tech companies. Its woes also reflect a difficult environment that has engulfed many social media companies. Digital advertising has been hurt by global economic jitters as brands reassess their budgets. The companies are also continuing to deal with privacy changes by Apple that have made it harder for them to target their digital advertising.

Last week, Snap, the maker of Snapchat, reported its slowest-ever quarterly growth, and its stock has fallen more than 75 percent this year. Twitter is in what may be the final throes of an acquisition by Elon Musk, the world’s richest man, which is likely to radically change the company as it goes private.

Meta also faces tough regulatory scrutiny. This month, the company said it would sell Giphy, an online repository of animated clips known as GIFs, after British antitrust regulators said Meta’s $315 million deal for the company had reduced competition in social media and digital advertising. Meta’s acquisition of Within, the maker of a virtual reality fitness app, has also been halted by the Federal Trade Commission over antitrust concerns.

It’s unclear how Meta’s metaverse investment will pan out given low user numbers, said Mike Proulx, a research director at Forrester, even as the company cedes users to rivals like TikTok.

“It truly warrants a conversation around what is Meta’s core business at present,” he said.

Despite the challenges, Meta grew its numbers of users. The number of people who use Facebook, Instagram, WhatsApp or Messenger daily increased to 2.93 billion users in the quarter, up 4 percent from a year earlier.