Facebook parent Meta said it would miss analysts’ expectations in Q1 2022, and the metaverse is to blame.
Okay, that’s probably unfair, given that Apple rewrote iOS to allow iPhone users to shut off Facebook’s ability to track them, slashing ad revenue, TikTok has been eating its lunch on short-form videos, and the combination of inflation and supply chain disruption trickling down to ad budgets.
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But the numbers speak for themselves when it comes to developing Facebook’s version of the metaverse, conceived of as an immersive virtual world where people can interact, shop and accept marketing. On its 2021 Q4 and full year earnings call Wednesday (Feb. 2), Meta provided revenue guidance of $27 billion to $29 billion when analysts expected $30.25 billion.
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Facebook Reality Labs — its metaverse division developing alternate reality (AR) and virtual reality (VR) hardware, software and content, including the Oculus VR headset — lost $3.3 billion in Q4 2021, and has only gotten worse, losing some $10 billion for the year.
So, $27 billion-plus at least the $3.3 billion Reality Labs lost in Q4 equals… analyst estimates.
The market was not understanding, sending shares down 20% and wiping $200 billion off Meta’s market cap. With swings like that, FB could almost be Bitcoin.
That said, Meta CEO Mark Zuckerberg, Chief Operating Officer Sheryl Sandberg, and Chief Financial Officer David Wehner all made clear that this area will see a lot of investment before the payoff of an actual, fully formed, usable metaverse.
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Not all of it is direct investment. Zuckerberg noted that Meta’s “AI research super cluster, which we think will be the world’s fastest super computer,” will play a big role in building the metaverse. However, that is not artificial intelligence spending’s primary function.
Zuckerberg called the metaverse one of the company’s seven investment priorities for 2022, along with TikTok competitor Reels, community messaging, commerce, ads, privacy and AI.
In discussing the company’s metaverse plans, Zuckerberg said it was focused on “the foundational hardware and software that [is] required to build an immersive, embodied internet that enables better digital social experiences than anything that exists today.”
This suggests that his long-term goals involve a far more realistic metaverse than the essentially cartoonish versions on the cutting edge today — including blockchain-based versions like Decentraland and The Sandbox, as well as Fortnite’s evolving MMO gaming world, and of course Horizon Worlds, the VR social communities the company has built for its Oculus Quest 3D headset.
Zuckerberg said that pre-metaverse product is doing well, with Christmas sales bringing the Quest app to the top of the app store over Christmas and $1 billion spent on Quest Store content. On that front, a higher-end VR headset is on the way. Still, everybody’s VR/metaverse hardware has a long way to go — the headsets are bulky and expensive and (personal opinion) not very comfortable for the long periods you’d expect to spend in a virtual world where you’d hang out with friends, shop, attend concerts and generally socialize.
That said, Zuckerberg said the company was bringing as much of the metaverse’s immersive VR as it can to 2D formats, with Horizon Worlds accessible on Facebook and Instagram mobile apps.
“This will enable us to build even richer social experiences where you can connect with friends in the metaverse, whether they’re in VR or not,” he said.
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Another focus is avatars, the digital representation of yourself Horizon Worlds and other developers’ metaverse creations. It’s an area in which Facebook lags behind existing metaverses, as it is just introducing its first line of avatar clothing — NFL jerseys — usable on all of Meta’s current platforms.
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NFT clothing and accessories have already proliferated in existing blockchain metaverses as brands from Nike to Gucci jump in, selling non-fungible tokens of everything from sneakers to couture dresses to Ferraris to wear them in.
See also: Ralph Lauren Uses Metaverse to Target Young Shoppers
That said, Zuckerberg made clear that his ambitions in the field run deep, saying, “we have a bunch of work ahead to make the avatars as expressive and high fidelity as they need to be, to fully represent us and help us feel present with one another.”
Read more: Experiential Marketing Meets Social Commerce in the Metaverse
And he has the budget to outspend current competitors by orders of magnitude — think back to that AI supercomputer cluster — which means the Facebook metaverse could end up being a lot more realistic than anyone else’s version. Facebook’s spent its way past better products before.
If they manage that again, and if the metaverse lives up to its hype, Reality Labs might be swinging the other way in earnings calls in the not-to-distant future. After all, there are a lot of advertising and marketing opportunities in a virtual world.
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