The value of Meta has decreased by $700 billion. It's a "train wreck." according to Wall Street

Although Facebook's parent company Meta Platforms is investing heavily in virtual reality, its actual implementation is now looking like a complete mess.

Following an earnings announcement that one Wall Street analyst referred to as a "train wreck," Meta shares fell 24% on Thursday, reaching their lowest point in over four years. It's a long cry from the situation the business found itself in on October 28, 2021, when CEO Mark Zuckerberg made the fanfare-filled announcement that Facebook was changing its name to Meta Platforms to underscore its focus on the "metaverse."

Facebook was still at a high in the fall of last year; in September 2021, its market value peaked at more than $1 trillion. As marketers raced to Facebook and Instagram to reach their billions of users, revenue and profits soared.

Yes, the tech sector as a whole has suffered this year, but Meta's stock decline has far exceeded the industry as a whole, with its shares down 67% from a year ago compared to the tech-heavy Nasdaq's 31% decline over the same time frame. The shocking market value loss caused by Meta's fall amounts to around $700 billion.

The market value of Meta dropped to $268 billion on Thursday from above $1 trillion in September 2021. On Friday morning, the shares made modest progress again, increasing $1.72, or around 1.8%, to $99.66 per share.

The company's struggles raise concerns about its all-in wager on the metaverse and if the social media giant will follow in the footsteps of other significant corporations whose bets on the future have failed. As the economy weakens and advertisers cut spending, Meta's main Facebook business will likely face difficulties in the foreseeable future.

According to Wedbush analyst Dan Ives, "Meta's numbers last night were an unmitigated train wreck that points to ubiquitous digital advertising doldrums ahead for Zuckerberg & Co. as they make the hazardous and perplexing bet on the metaverse."

Due to his 13% ownership share in the social media firm, which accounts for the majority of his income, the blow to Meta has also reduced Zuckerberg's personal worth. According to the Bloomberg Billionaires Index as of October 27, he had a $37.7 billion net worth but had lost about $88 billion in wealth over the previous 12 months.

Here are three major problems that are hurting Meta shares and raising further concerns about its long-term prospects.

losses in the metaverse of $9.4 billion

Zuckerberg said he is "very sure this is heading in a favorable way" during a conference call with investors on Wednesday to report Meta's most recent earnings.

Investors are unpersuaded. The business is essentially betting the farm on its capacity to develop into a virtual reality juggernaut and if that technology can drive the subsequent stage of Meta's growth.

The early results for Meta have been dismal, despite the fact that large corporations can take years to implement such strategic pivots, as it did for IBM and Microsoft when they switched from selling hardware to software. Meta's metaverse division, Reality Labs, lost $9.4 billion in the first nine months of the year. The firm predicted on Wednesday that the segment will see "substantially" larger operational losses in 2023.

Investors are wary since users haven't exactly flocked to the nascent metaverse, at least not yet. Wall Street values firms based on near-term profits rather than hazy estimates that stretch years into the future, in contrast to the lengthier timelines for establishing enterprises that are typical in Silicon Valley.

According to a Wall Street Journal story from earlier this month, Horizon Worlds, Meta's new virtual world, has lowered its target for monthly active users from 500,000 to 280,000 but is still drawing less than 200,000 people.

According to Angelo Zino, a senior stock analyst at CFRA Research, "investors should stay on the sidelines as it will take several years before advancements in the metaverse can be properly monetized."

slower growth on Facebook

In contrast, Facebook, which had a 3% gain from a year earlier, had a large base of 1.98 billion active daily users on average in September.

Although that might sound commendable, Facebook hasn't enjoyed the massive growth it had in prior years. The slower growth also follows Facebook's announcement in February that it had lost users for the first time ever.

The social media behemoth, which is a major source of income for Meta, is under competition from upstarts like TikTok, which is attracting younger users.

advertising difficulties

The advertising income generated by Facebook, Instagram, and WhatsApp, with companies eager to reach their billions of daily users, is the lifeblood of Meta. However, its most recent quarter's ad revenue dropped while sales dropped 3.7%, raising investor concerns.

Meta is dealing with two setbacks on the advertising front. With the corporation citing an "uncertain and turbulent socioeconomic landscape" for advertisements on Wednesday, a slowing economy implies that advertisers are curtailing expenditure. The corporation is also considering how Apple's privacy reforms would affect the apps that run on its devices. Customers may now instruct applications to stop tracking them, a shift that Facebook has estimated will cost it $10 billion this year.

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