Huge loss of tens of billions of dollars! Meta launched its first "meta-universe" financial report, and the market value evaporated by $200 billion

Meta, the "metacosm" tech giant that owns Facebook, on Wednesday released less-than-expected earnings. Earnings reports show that the company's "meta-universe" division has lost more than $10 billion in the past year. That sparked a massive sell-off in the market, with Meta's after-hours plunge of 21 percent on Wednesday, its biggest one-day drop since the company went public in 2012, about 34 percent from its September high, and its market value evaporated more than $200 billion after hours, triggering a collective collapse in social media companies' stock prices.

On the same day, social media companies Twitter and Pinteres both fell more than 10 percent, wiping billions of dollars in market value, while Snap shares fell 18 percent, wiping out nearly $10 billion in market value.

Spotify also posted a less-than-expected earnings report on Wednesday, causing its shares to fall as much as 23 percent in after-hours trading before narrowing the drop to around 10 percent.

The social media slump also triggered an overall decline in tech stocks. Amazon shares fell 3 percent after hours on Wednesday, with Amazon set to post earnings on Thursday; Google shares fell 2 percent, giving back gains after Tuesday's positive earnings report.

Meta's lower-than-expected earnings report echoed the poor performance of several technology companies. Netflix's stock price hit its biggest drop in nearly a decade after releasing a less-than-expected earnings report last week; after the release of the online payment company's PayPal earnings report on Tuesday, the stock price fell nearly 25%, and the market value evaporated by $51 billion.

Over the past few months, investors have been dumping stocks in tech stocks and other high-growth companies over fears of rising interest rates. As of now, the NASDAQ is down about 10 percent from its record high in November.

"It's a very unforgiving environment and it can be an overreaction for companies with strong balance sheets." But we clearly see that investors are nervous and they will press the sell button first and then think about it later. Michael Farr, CEO of miller & Washington, an investment firm, told investors.

This is Meta's first earnings report since the launch of its "Metacosmos" strategy. According to the earnings report, Meta's revenue in the fourth quarter of last year was $33.7 billion, including advertising sales of $32.6 billion; net income of $10.3 billion, earnings per share of $3.67; and monthly active users of 2.9 billion, less than expected.

The cost of building a "metaverse" is not cheap. In its first Metacostem earnings report, Reality Labs, Meta's Metacosmic development arm, reported huge and growing losses, losing more than $10 billion to $10.2 billion in 2021, with revenues of just under $2.3 billion. In 2019 and 2020, Reality Labs had revenues of $500 million and $1.14 billion, respectively, and losses of $4.5 billion and $6.6 billion, respectively. Meta expects operating losses to also "significantly increase" in 2022.

In the fourth quarter of last year alone, Reality Labs lost $3.3 billion, more than double Google's investment in the Emerging Technologies business unit. Meta said the $4.2 billion loss last year was all due to staff costs, research and development and sales costs.

In addition, the market is also worried that Meta will face fierce competition from other rivals such as TikTok. In response, Facebook founder Zuckerberg told analysts on an earnings call: "People have a lot of choices about how to spend their time, and apps like TikTok are developing rapidly, and competition will put short-term pressure on Meta's advertising business." ”

Industry insiders believe that the huge investment of giant companies such as Meta in building a "metacosm" also reflects their advantages. Compared to competitors such as smaller game companies Roblox or Epic Games, companies with strong balance sheets such as Meta have a steady stream of financial strength with huge market capitalizations.

"We think the construction of the metaverse could take 5-10 years or more, and Meta has plenty of time to find new sources of growth and new development strategies." Zhang Junyi, managing partner of Oliver Ypresity Consulting, told the first financial reporter.

In addition to the expense of building a "metacosm", another big challenge facing Meta is the huge impact of privacy changes on platforms such as Apple and Google on advertisers' revenues. "These policy changes have made it more difficult to track users and target ads, and there is less and less data to deliver personalized ads." Zuckerberg said.

Meta expects sales to decrease by about $10 billion in 2022 due to privacy policy adjustments. "We believe iOS will have an overall negative impact on our business in 2022." Dave Wehner, Meta's chief financial officer, said on the company's fourth-quarter earnings call, "This impact is expected to reach at least $10 billion in size, which is a considerable challenge for our business." ”

Meta expects revenue in the first quarter of 2022 to be between $27 billion and $29 billion, up 3% to 11% year-over-year. Meta also warned that macroeconomic challenges such as inflation and supply chain disruptions are affecting advertisers' budgets.