Meta’s Earnings Report: A Shift in Investor Sentiment

Meta Platforms (NASDAQ: META) experienced a drop in stock price following its earnings report that was released on Wednesday night. The stock was down 3% in after-hours trading despite the company surpassing analysts’ estimates for revenue and earnings. After a successful year with significant gains, investor expectations were notably high before this report.

Positive Revenue and Earnings, But Investor Concerns Rise

Meta’s revenue increased 19% to $40.6 billion, exceeding the forecast of $40.29 billion. Additionally, earnings per share climbed 37% to $6.03, surpassing estimates of $5.25, thanks in part to a lower tax rate.

Nonetheless, investors were worried about the rising costs within Meta’s Reality Labs division, which reported a substantial $4.4 billion loss. This division handles hardware like the Quest VR headsets, AI infrastructure, and metaverse software, generating just $270 million in revenue during the quarter. Such figures suggest that Reality Labs is significantly impacting the company’s overall performance with minimal contribution to revenue.

Image source: Getty Images.

Reflecting on the Company’s Rebranding Journey

In 2021, Meta rebranded from Facebook to align with its new focus on expanding beyond social media. This shift also aimed to capitalize on growing interest in the metaverse, particularly during the pandemic when many were confined at home.

CEO Mark Zuckerberg’s strategy initially seemed successful as Meta’s stock soared, even crossing the $1 trillion market cap. However, despite advancements in AI tools, losses from Reality Labs have continued to mount, with no end in sight as the company anticipates further increases in 2025.

Apple’s Strategy Shift Signals a New Direction

A key competitor, Apple (NASDAQ: AAPL), appears to be retreating from its own metaverse plans. Mark Zuckerberg had previously identified Apple as a primary competitor in the race for next-generation computing platforms.

Both companies seemed aligned in their vision for the metaverse, yet this perspective is changing. Reports indicate that Apple is significantly reducing production of its Vision Pro mixed-reality headset due to a disappointing market response. The company’s assembler has been instructed to pause production, and Apple has remained silent regarding the product since its launch in February.

Redefining Future Strategies

Zuckerberg’s perspective on the next major computing platform has proven partially correct. While new technologies are indeed emerging, they appear to be in generative AI rather than the previously anticipated metaverse. This trend has attracted substantial investment into innovations such as Nvidia chips.

Although Meta strives to lead in generative AI, the dream of a thriving metaverse seems increasingly distant. A potential shift away from the metaverse strategy, similar to Apple’s approach, might help Meta save costs, although the extent of the savings remains uncertain.

Reassessing the importance of Reality Labs might be key for Meta Platforms moving forward. Although a drastic shift like Apple’s is unlikely, a recognition of the current lack of demand for metaverse products could be beneficial. This acknowledgment might help lift Meta’s stock as investor skepticism around spending in this area grows.

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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Jeremy Bowman has positions in Meta Platforms. The Motley Fool has positions in and recommends Apple, Meta Platforms, and Nvidia. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.