Expensive Metaverse: Meta rethinks priorities - and plans fewer hires
The global economy is suffering from the consequences of the pandemic and the Ukraine crisis. The advertising market in particular is feeling the effects - and so is Meta.
Since September 2021, Meta's share price has lost around a third of its value. Revenue growth has fallen short of analysts' expectations in the last two quarters, user growth is low and is also a controversial metric, as Meta does not provide accurate data on activities such as bots and fake accounts.
The biggest pivot in Silicon Valley history will take a few more years
At the same time, Meta has been pouring billions of dollars into VR and AR technology for years. An investment that has not paid off so far and will not for the foreseeable future: Meta CEO Mark Zuckerberg recently prepared investors for the fact that Metaverse revenues will only show their full potential in the 2030s.
During the second quarter earnings call, Meta's CEO indicated that given the current business growth, investments in the Metaverse in particular may be curtailed and near-term financial targets prioritized.
By the latter, Zuckerberg likely means further growth in the core advertising business with Facebook, Instagram and WhatsApp, which cross-funds Metaverse development. "I know that it's [the Metaverse] expensive to build," Zuckerberg said in the call.
Meta invested $3 billion in Reality Labs' XR development last quarter alone. That spending is offset by revenue of about $700 million.
Meta needs to rethink priorities - and is hiring less
A leaked internal memo from Meta CFO David Wehner backs up Zuckerberg's statement. Wehner speaks of the need for "focused, balanced investments" that support key strategic priorities in light of recent business results.
Wehner cites Apple's iOS advertising restrictions, the Ukraine crisis, the overall challenging macroeconomic environment and the short-term rapid growth during the pandemic years, among other reasons for the recent slower revenue growth.
As a first concrete measure, Wehner announced that fewer employees would be hired than originally planned. This decision would affect "almost every team." Wehner does not give exact figures, but mentions that Meta hired as many engineers in the first quarter of 2022 alone as in the entire year 2021.
Wehner also addresses internal restructuring to strengthen projects that will be prioritized this year. He cites monetizing reels on Instagram, an AI-based ad system to overcome iOS disadvantages, business messaging, and "bringing the metaverse to life" as possible future growth drivers.
Meta must act responsibly now, he says, as "unpredictable market forces" have put pressure on the core business lately.
"We need to take another look at our priorities and make some tough decisions about what projects we go after in both the short and medium-term to achieve the lower expense guidance we committed to during earnings," Wehner wrote.