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Metaverse bet costs company billions as Meta profits drop 23%

Metaverse bet costs company billions as Meta profits drop 23%

The tech giant’s advertising revenue increased from the previous year, but its metaverse division continues to lose money.

Meta, which owns Facebook, said Wednesday that its first-quarter profits were 23% lower than the same time last year. This is because the economy is getting worse, and Mark Zuckerberg’s social media empire is trying to find its feet.

Meta’s advertising revenue increases, but metaverse division still loses money

The social media giant made $5.7 billion in its first quarter, which is 23% less than the $7.4 billion it made the same time last year. The total amount of money made in the first quarter was $28.6 billion, which is a little more than the $27.9 billion made in the same time last year and more than Wall Street expected for the quarter, which was $27.7 billion.

In a letter to shareholders, Zuckerberg stated that the company “had a good quarter and [its] community continues to grow,” adding that the company’s app-wide emphasis on artificial intelligence is leading to promising results.

While the company’s image has been largely centered on its metaverse drive since rebranding in 2021, the majority of Meta’s revenue comes from advertising, which totaled $28 billion during the quarter compared to just $205 million from other sources. However, the company’s most recent advertising revenue figures represent an increase from $27 billion a year ago.

After losing $14 billion on Reality Labs, which was focused on the metaverse, last year, Zuckerberg said that 2023 will be the “year of efficiency” for the metaverse. This is because the social media giant is trying to weather a tough business climate and fight off competition from other social media platforms like TikTok.

Reality Labs still keeps losing a lot of money, though. During Meta’s first quarter, the section lost $3.9 billion, which is more than the $2.9 billion it lost during the same time last year.

In an effort to reorganize its structure and eliminate low-priority initiatives, the company had already laid off 11,000 employees by November of last year and announced the dismissal of 10,000 more workers last month, along with the elimination of 5,000 job openings.

In the announcement, Zuckerberg said that the metaverse was still “central to defining the future of social connection,” yet it would also lean heavily into AI as its “single largest investment,” following the success of OpenAI’s ChatGBT.

Last year, one of Meta’s biggest accomplishments was using AI to make legs look real in its Horizon Worlds game. In 2023, the company has released a number of tools that use the hot technology, including ones for advertisers.

Zuckerberg stated on Wednesday’s earnings call that the company is not dimming the spotlight on its metaverse vision simply because it is highlighting its plans to leverage artificial intelligence.

“A narrative has developed that we’re somehow moving away from focusing on the metaverse vision, so I just want to say up front that that’s not accurate,” Zuckerberg said. “We’ve been focusing on both AI and the metaverse for years now and we will continue to focus on both.”

It’s important to note, though, that Zuckerberg only talked about the metaverse eight times in his opening comments, while he talked about AI twenty times.

Meta’s stock price has dropped a lot since it changed its name. It trades on the Nasdaq under the ticker META.

When the company stated it was changing its name in late October 2021, its stock was worth about $316 per share. When markets closed today, it was worth just over $209 per share. But Meta stock had risen about 74% so far this year, which was much more than the 13% rise in the Nasdaq Composite.

After Meta’s earnings report came out, the price of its shares went up by 12%, to $233, during after-hours selling.

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