Jon Swartz, Senior Reporter at MartketWatch, joined Closing Bell to break down Meta's latest earnings report, and discuss why investors are leaving the company after it reported $9.4 billion in losses from its Metaverse division in 2022 alone.

Meta Asks Investors for Patience as its Metaverse Losses Mount

Welcome back to closing balance, better news, everyone meta shares, plummeting it today after the company posted a big miss on profit for the third quarter and it does all come back to the metaverse, it's reality labs unit which develops the metaverse has lost about 9.4 billion just this year, with sales in the business dropping about 50% year over year and meta expecting metaverse losses to actually grow in 2023. So I do want to welcome my next guest joining me now is john Schwartz, senior reporter at Market Watch, john it's good to see you, I know Ceo Mark Zuckerberg asking for patients from investors on the earnings call, but it doesn't seem to be working. What might this portend for meta going forward? Well remember monday, there was a letter from Ultimate Capital from their Ceo Mark Zuckerberg in particular, meta in general about their misgivings about the amount of money they're spending on the metaverse. While we're in an economic downturn where ad sales are down, so you get these two things going on at the same time, which actually don't work very well together. So we see uh yesterday, a profit that's half of what it was a year ago. So the profit goes from 9.2 billion to about 4.6 billion. Uh they hit on sales barely, but as you mentioned earlier, there's the $9.4 billion Meta yesterday talked about consolidating real estate around the world to save $2 billion dollars and to cut back on hiring. So it has, it has an effect on the long term and this is all predicated on the idea that the universe is going to take off and that is years away. Yeah, I would be curious, john as to how many years you think it might take for the metaverse to actually get going? I mean there does seem to be obviously real life, tangible demand for it now in the gaming space as has been the case I think for several years, but how does this brought it out to a more mainstream audience? And what is the timeline? You know what, I can't answer the question because Mark Zuckerberg can't answer the question. So yesterday, during their conference call with analysts, he was asked at least two times, maybe three times what the horizon is for revenue from a diverse, you know, what they expect to bring in the next several years. He couldn't answer the question. He uh he hemmed, he hawed, he kind of deflected, he said, we're going to continue to do this because we think it's gonna be incredibly significant for not just desperate for the entire industry, but he couldn't provide an answer, I'm thinking several years away. Uh and it's just that the timing again is so bad because in a sense they're trying to do something above and beyond at the same time they have waning user growth user engagement revenue per user. Uh it's one former investor in metaphor to, well to me says they're chasing ghost isn't even a cogent idea yet, let alone, you know, bet the farm guaranteed bets right. The topic is, you know, it's like several years from now and the problem is because of the way the stock is structured, Mark Zuckerberg will stay admitted as long as he wants to and he will probably answer to only himself and he was so adamant about maintaining this strategy and disproving everyone that he will continue down this path? And it almost in a weird way it reminds me of like a politician or a general just doubling down on a strategy that's not working and I don't see a significant change and unless the metaverse takes off a lot sooner than we expected to. Here's another question for you, john what do all of these investments in the metaverse, these tens of billions of dollars that Zuckerberg is committing to? It comes obviously with an impact on hiring its real estate footprint as well, What's the impact on its current properties like instagram facebook and WhatsApp, That's a good question, WhatsApp, I'm never quite sure, you know how they monetize it instagram. It kind of in essence sucks resources away. Maybe that's the best way to put it that this commitment to metaverse in a sense, this obsession with it kind of sucks away attention and detail from the other side. I know that in the call yesterday metaverse talked about their ai investments as well as metaverse and the continuation of sharpening up the search and and going after ad advertising. But to me it's just the numbers just don't add up And it also in a weird way it makes me wonder about the timing of the departures of some people like Sheryl Sandberg in a sense, she, she may have seen what was going on, she may have fought against this for all we know and pushed back is that this really doesn't work as the Ceo, so she's gone and I'm in a sense probably, she probably saved herself a lot of anxiety by by departing and you're seeing a lot of people, a lot of people leaving meta Yeah, I thought that was really notable, right? I think this probably was the first earnings call that Cheryl Sandberg was not actually on the college, she did depart in early july I believe, but it is a major about face loss despite what you might think about her also the CFO is leaving, so this is his last earnings report until he settles into a chief strategy officer. So there's a new CFO Susan lee who's starting november 1st and she was walking into base basically this land mine where she has to thread the needle, you know, find ways to cut back on costs and put up with this, this albatross of the metaverse around their neck in the midst of a recession that's like really crazy and I don't envy her from the position she's in. But then again from the beginning of the call to the end, Zuckerberg was, he wasn't openly defined but he was damn stubborn about how he's going to stick with this and spend billions. He's not gonna, he's not gonna take his foot off the pedal, but This is going to have an impact. I would think not just on a hiring freeze, but maybe you might see some cutbacks if you're not in a position of of use to the company that that points to the metaverse, maybe your diminished in terms of your attractiveness. And again, the, the investor who sent the letter on Monday says that in a sense, Facebook has to reduce payroll expenses by 20% if they're really serious about making any of this work. Yeah, I am interested over time. Um whether or not resources get pulled from platforms like instagram facebook, I don't know whether or not, you know, it's okay, maybe even spin out instagram but we got to leave it there, john we gotta keep, we gotta keep things moving. But it's always Good to see you. So thanks so much for joining. We'll chat again. That's John Schwartz, a senior reporter at market watch. And I do see, I should note meta shares. It looks like they're at their lowest since 2016, so we're talking way under performance on this big bet by Mark Zuckerberg.