Metas Reality Labs takes a hit, but investors are still bullish

Investors are still optimistic that Meta Platforms’ foray into the Metaverse will help shore up weak earnings caused by Apple’s new privacy policy and competition.

As Meta Platforms faces pressure from competitors in the advertising space, the Metaverse technology game embodied in Reality Labs suffered a setback in the second quarter, incurring huge losses.

Despite Reality Labs’ huge losses, investors remain optimistic that the business, which focuses on developing augmented and virtual reality hardware and software to supplement its dwindling advertising revenue, will thrive.

Zuckerberg remains optimistic

Meta reported second-quarter revenue of $28.8 billion, up from $29.1 billion in the first quarter of 2021, marking its first year-over-year decline. Investors were expecting $29 billion in the second quarter.

Reality Labs’ operating loss increased to $2.8 billion this year from $2.4 billion in the second quarter last year. In the first quarter of 2022, the division lost $3 billion. Revenue increased to $452 million in the three months ended June 2022 from $305 million in the second quarter of last year, but fell below first-quarter revenue of $695 million.

CEO Mark Zuckerberg remains optimistic about the division’s growth opportunities. He predicts revenue streams from the company’s Metaverse initiative will bring in billions, if not trillions, of dollars. He added that it’s a very costly endeavor for Meta.

Of particular interest to the cryptocurrency industry is the development of a cryptocurrency wallet called Meta Pay, which experts say needs to protect consumer assets and clarify which assets are supported. This follows Meta’s announcement of the suspension of its Novi wallet earlier this year and its failed Diem project, which has failed to win friends in Congress.

How will Zuck keep his promises?

An analyst Brian White of Moonness, Crespi, Hardt & Co. changed his price target for Meta shares from $230 to $250, while Truist Securities’ Yousseff Squali believes the move to the Metaverse reflects some of the company’s earliest successful bets: mobile and social media stories.

But the recruiting landscape is changing. Researcher Revelio Labs revealed that job postings for Metaverse positions fell 81% in the second quarter after Meta announced a name change from “Facebook” to “Meta” last fall. Tech workers from Silicon Valley to Bangalore are getting a chilly reception as the industry slowdown continues.

This leaves questions about how Zuckerberg will deliver on his Metaverse promises to investors. In Wednesday’s earnings conference call, Zuckerberg said lower revenue has necessitated cuts in long-term investments and a suspension of hiring. Google, which continues to make strides in augmented reality, has also suspended the hiring.

But the market for freelance work in the metaverse, including development of 3D environments and avatars, has more than quadrupled.

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