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Meta released it Q3 earnings report after the stock market closed Wednesday, reported $27.7 billion in revenue. While the tech giant hit the projections, it’s still a 4% drop in revenue from last year. This marks a second consecutive quarter of decline. Meta itself believes this trend will continue in Q4, setting lower-than-expected targets.
The market did not react well to this news and Meta’s current game plans. The stock price is down about 30% overnight and down about 70% so far.
While the top numbers suggest that the Meta is on the right track, other indicators paint a more bleak picture. Meta has doubled its investment costs compared to the third quarter of last year. Coupled with reduced spend from advertisers, rising energy prices affecting data centers and supply chain issues, Meta’s margins are rapidly declining. In the third quarter of 2021, Meta brought in $9.55 billion after capital and operating expenses. For the quarter, that number has dropped to $173 million — down more than 98% from the same period last year.
Improvements for it artificial intelligence (AI) technology, algorithms and production Meta Quest Pro all contribute to the company’s growing budget. Practical laboratory, developing the technology underpinning reverse has so far lost $9.4 billion in 2022.
When asked about whether Meta has lived up to his own expectations, Mark Zuckerberg supported the company’s work. Zuckerberg believes that Reality Labs’ efforts in Horizon WorldsVR, AR and its “wrist-based neural interface” to control its teased AR glasses have a long way to go, but he believes Meta is at the forefront of developing these immersive technologies. .
“I think this is going to be fundamentally important for the future. Zuckerberg argued.
However, Zuckerberg and the investors there seems to be a clear disconnect between them. Jefferies analyst Brent Thill argued on the earnings call that investors believe Meta is making “too many test bets compared to proven bets”.
When a company is growing, investors will pay more for the stock than what the base company is earning today. This premium can be measured as the ratio between a company’s enterprise value – the total value of the company’s shares and debt – to its Earnings Before Interest, Taxes, Amortization and Depreciation (EBITDA). . This is often referred to as the EV/EBITDA multiple. Growing companies can trade at 10, 20 or even 30 times their current earnings.
At its peak in 2013, Meta – then Facebook – was trading at around 28x EV/EBITDA multiples. After the Q3 earnings call, Meta is trading at 5x EBITDA. This shows that investors see Meta as a mature company in its current form, not a growth engine.
While the metaverse has the potential to change the game, it’s not clear that investors have the desire to fund something unproven that may not be ready for 5 years or more.
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