Facebook Parent Meta Shares Fall to New Multiyear Lows

Meta’s revenue dropped 4% in the recently ended quarter, its second consecutive quarter of declining revenue, as the social-media giant battles growing competition from rival TikTok and fallout from

Apple Inc.’s

AAPL -2.47%

ad-tracking changes. Tightening macroeconomic conditions are weighing on advertiser spending, the company said, and the strong dollar also hit revenue.

Those challenges come as Meta Chief Executive Officer

Mark Zuckerberg

pushes forward with his expensive pivot to the metaverse, an endeavor that has already cost the company billions. Meta Chief Financial Officer

David Wehner

said Wednesday that losses at the unit, Reality Labs, will grow significantly next year. After that, he said, the company plans to pace investment in Reality Labs and focus on growing the overall company’s operating profit.

Analysts homed in on Mr. Wehner’s comments that total costs for 2023 will continue to grow to a range of between $96 billion and $101 billion. The company’s additional expenditures are expected in data centers, servers and infrastructure, as its payroll costs hold steady.

Other analysts were more harsh in assessing the rising costs, especially as some investors were expecting that expenses would be held in check amid plans to keep head count flat.

“We’re incredibly frustrated to see expenses balloon with an almost total disregard for investor expectations,” Bernstein analyst Mark Shmulik said. He also questioned Meta’s governance structure, and whether there “are any checks and balances to spending and investment decisions.” 

He maintained his outperform rating on shares, however, anticipating that results might not get worse from here. “Our old swim coach once crudely said, ‘The bad news is you suck, the good news is you can only get better,’” he said. “There was some truth to those words, and perhaps the same holds true here.”

Oppenheimer analysts called the guidance “very disappointing”, while Deutsche Bank analysts said it was “the wrong number at the wrong time for investors.”

“Meta appears to have limits on how fast it can pull back expenses,” KeyBanc analysts said Thursday in a research note.

James Lee

and

Wei Fang,

analysts at Mizuho, said the company needs to do more to lower operating costs.

Analysts at Raymond James said accelerating losses at Meta’s Reality Labs unit are unlikely to sit well with investors “given its unproven business model.” The unit, which is driving the company’s virtual-reality and metaverse efforts, posted a nearly 49% drop in revenue to $285 million and had an operating loss of $3.7 billion for the recently ended quarter, the company said.

Mr. Zuckerberg said Wednesday that he was encouraged by the company’s progress in responding to the tougher environment. “I have to say that our product trends look better from what I see,” he said on a call with analysts.

Stifel analysts said Meta’s commentary on underlying advertising trends were better than what other companies have said this earnings season. The analysts said there is also likely less of a headwind from Apple’s ad-tracking changes going forward, and that monetization of Instagram Reels, a short-video feature, is improving.

“None of that matters, however, when ’23 expenses are significantly ahead of expectations, particularly when Reality Labs losses are indicated to grow ‘significantly,’” the analysts said.