Facebook renamed the company Meta in October last year and stated its vision for the future development of the Internet. In such an Internet world, people can connect in the digital world through virtual people, or travel to places like ancient Rome. Facebook’s move has sparked an investment boom in virtual reality.
The company, now called Meta Platform, will report fourth-quarter earnings on Wednesday. At that time, investors will get a window into the impact of CEO Mark Zuckerberg’s bets on the metaverse business on the company’s financial health.
Meta plans to report for the first time the results of Reality Labs, the augmented reality and virtual reality hardware unit. The company previously warned that the investment would negatively impact profits by $10 billion in 2021 and would not be profitable “in the near future.”
The company is recruiting engineers and acquiring multiple virtual reality game studios to build the Metaverse. The metaverse is a very broad futuristic concept that allows users to access virtual worlds across multiple devices. Zuckerberg believes that after the mobile Internet, the metaverse will become the next form of Internet development.
Analysts said they wanted to understand Reality Labs’ profitability, how long the business would weigh on Facebook’s advertising business and sales of virtual reality headsets. Stephanie Llamas, the virtual reality market analyst at VoxPop, said: “As an analyst, this is very important to me. You don’t need to dig through Facebook’s earnings, just understand Reality Labs.”
Meta had expected non-advertising revenue to decline year-over-year in the fourth quarter. The Quest 2 virtual reality headset saw strong launch sales during the holiday season last year, and sales were weak year-over-year in the fourth quarter.
Meta has yet to release sales figures for the Quest headset. Last July, Meta announced a recall of the Quest 2’s facial foam pads, affecting 4 million headsets sold in the United States. The Oculus app recently topped the US iPhone App Store’s top free apps chart, suggesting the headset has enjoyed strong sales during the recent Christmas holiday season.
However, investors are still most concerned about Meta’s core digital advertising business. The company said in October it would face “significant uncertainty” in the fourth quarter. Meta owns the second-largest digital advertising platform in the world, after Google.
The company warned that Apple’s changes to user privacy protection rules could have a lingering impact, making it more difficult for brands to accurately place and measure advertising on social media platforms such as Facebook and Instagram, which is owned by Meta. Analysts said Meta had previously given lower expectations for its upcoming earnings report, but questions remain about those impacts and related to the coronavirus outbreak.
Evercore ISI analyst Mark Mahaney said: “Apple’s adjustment to user tracking clearly had a negative impact on Facebook’s third-quarter results. The question is whether they can reduce this risk, or will they see the risk change. bigger?”
Global X research analyst Pedro Palandrani believes that the Metaverse is a “long-term story”, and in the short term, investors will focus on how Meta responds to Apple’s policy adjustments, the dynamics of the e-commerce industry, and how the company is driving the monetization of messaging and content services, such as short-video app Reels.
Meta posted a 2020 revenue of about $86 billion. The company has yet to specify how it will make money through the Metaverse business. Last November, Meta mentioned Metaverse’s potential opportunities for brands, such as immersive virtual stores and hosting paid mixed reality events.
The company has invited a number of advertising industry executives to discuss the brand upgrade and plans for the Metaverse business at a virtual roundtable next month.
According to Wall Street estimates, Meta’s revenue for the quarter would be $33.38 billion, up 18.9% year over year, and earnings per share would be $3.84, down slightly. The company had previously projected total expenses of $70 billion to $71 billion in 2021, and full-year expenses of $91 billion to $97 billion in 2022.