Meta Platforms, a diversified technology company, has faced challenges in 2022, as have many other technology companies. However, in 2023, under the leadership of its CEO, Mark Zuckerberg, the company embarked on a “year of efficiency,” implementing cost cuts, including several rounds of layoffs. This has led the company’s revenues and profits to exceed Wall Street expectations, marking a sea change in the market’s perception of the company.
This focus on “efficiency” is proving successful. While Meta Platforms’ revenue from sales of virtual reality headsets is not yet significant, cost reductions combined with its dominance in the social networking world should offset the growth challenges it faces in the metaverse.
Problems with the Metaverse
Despite progress in its core social networking business, Zuckerberg acknowledged that the response to its metaverse efforts has been disappointing. The company’s Reality Lab unit has been generating significant operating losses, amounting to $3.8 billion in the second quarter alone.
While Zuckerberg remains steadfast in the belief that Meta will be a leader in the metaverse over the long term, investors face two different potential scenarios for the company’s future.
In the first scenario, the continued bleeding of Reality Labs could force Meta to abandon much of its vision for the metaverse. Accumulated losses so far have exceeded $40 billion, and the outlook for 2023 doesn’t look much more encouraging, as operating losses are expected to increase even further.
The second, more optimistic scenario is based on Zuckerberg’s confidence in his vision of the metaverse. If the adoption of smart glasses and virtual reality skyrockets, and Meta manages to effectively monetize the trend, the company could experience a significant increase in revenue and market value.
Zuckerberg is aware that all investors do not share his metaverse vision. He acknowledges that it is like a lottery ticket, with the possibility that his efforts will result in a colossal waste of time and money. Nevertheless, Meta’s CEO maintains that he firmly believes in the direction the world is headed.
Growth of its main platforms
The second quarter financial results highlight Meta Platforms’ ability to generate impressive revenues through digital advertising, pushing the stock up near 6%. Advertising revenue grew 12% year-over-year, supported by digital ads across multiple apps such as Facebook, Instagram, and WhatsApp.
A prominent component of Meta Platforms’ success is Reels, its AI-enhanced short-form video addition. This feature offers monetization opportunities for content creators, and advertisers are increasingly relying on Meta Platforms’ AI-powered campaign planning and measurement capabilities. This has led to significant growth in Reels’ annual revenue, surpassing $10 billion.
In addition, Threads, Meta Platforms’ short message platform, threatens to steal Twitter’s market share. With 100 million signups within days of its launch and optimistic future revenue projections, Threads could provide an additional boost to the company’s bottom line.
Expert opinion
Wall Street analysts have rated META shares with a “Strong Buy” rating, backed by 37 “Buy” and only three “Hold” ratings in the past three months. The average price target for Meta Platforms shares implies a potential upside of 17.1%.
Although Meta Platforms is betting heavily on the metaverse and virtual reality, its strong position in social media and its popular apps ensure substantial revenues even if they face losses in these emerging areas.
With AI-powered Reels and Threads gaining ground, Meta Platforms is well positioned to remain a dominant force in the social networking market.
Do you think Reels and Threads will continue to drive Meta forward? Do you think new technologies will cement Zuckerberg’s vision for the metaverse?
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(Information in this post is for general informational purposes only. It cannot and should not be considered as suggestions or recommendations regarding investing or financial decisions.)
