META: Zuck Goes All In On The Metaverse

We anticipate Reality Labs operating losses in 2023 will grow significantly year over year – META 3Q22 Press Release 10/26/22

With his stock down ~70% from its all time highs as its core business – Facebook and Instagram – matures CEO Mark Zuckerberg is making an All In bet on the Metaverse.

Let’s start with the core business. Daily Active Users (DAUs) have clearly reached some sort of saturation point. They inched up to 1.98 billion in 3Q22 from 1.97 billion in 2Q22 – and this has been the case for many consecutive quarters now. As a result revenue growth has actually turned negative the last two quarters clocking in at -4% in 3Q22. And that isn’t going to change next quarter with META guiding 4Q22 revenue growth to -9%. Operating income, net income and EPS were chopped in half in 3Q22 compared to a year ago.

But that isn’t stopping Zuck – or perhaps it’s the reason? – from going All In on the Metaverse. META’s total expenses in 2021 were $71 billion. In 2022 they are expected to be $85-$87 billion. And 2023? META is guiding them to $96-$101 billion. To put that in perspective META’s 2022 revenue is expected to be $115 billion. In other words if revenue is flat in 2023 operating income will be down two-thirds from $47 billion in 2021.

As best I can tell this is due to heavy investment in their Reality Labs i.e. Metaverse segment. Reality Labs lost $9.4 billion in the first three quarters of 2022 and – as you can see in quote at the top of this blog – META expects losses in this segment to grow significantly next year. META has $42 billion in cash and marketable securities on its balance sheet and the core advertising business is still highly profitable but this is an audacious bet.