Shareholders of Meta Platforms Inc. are suffering greatly as a result of its metaverse investments: The market value of the company that owns Facebook has plummeted by a staggering $677 billion this year, knocking it out of the top 20 global corporations.
There are no indications that the punishment will soon lessen. After frightening investors with rising costs to fund their version of virtual reality and a drop in sales, Meta’s stock is down as much as 25%.
Meta was the sixth biggest US company by market capitalization at the start of the year, flirting with a $1tn market value. Fast forward 10 months and the stock will be worth about $258bn, ranking it 26th. Its market value is now smaller than companies including Chevron Corp., Eli Lilly & Co. and Procter & Gamble Co.
Once a Wall Street darling, Meta is gradually losing favor with brokerages. At least three investment banks — Morgan Stanley, Cowen and KeyBanc Capital Markets — cut their rating on the stock after the company gave a disappointing quarterly revenue outlook.
“Meta remains too aggressive with its investments in long-term initiatives despite a sharp deceleration in expected revenue growth,” said Mandeep Singh, an analyst at Bloomberg Intelligence. “The company’s opex and capex view for 2023 is surprising, given the lack of traction so far with its metaverse efforts.”
While Thursday’s premarket slump is a big move, it pales in comparison to its record-setting rout in February when it plunged 26% on the back of woeful earnings results, and erased about $251bn in market value. That’s the biggest wipeout in market value for any US company ever.
The decline in the stock this year has attracted value investors, who buy beaten-down stocks in anticipation of a turnaround. But there’s no sign of those bets paying off any time soon.
Meta announced its shift to investing in virtual reality a year ago, along with a name change of the company from Facebook Inc. to Meta Platforms. The company said Wednesday it expects total expenses for this year to be $85bn to $87bn.
This amount is projected to increase to between $96 and $101 billion in 2023. According to Neil Campling, an analyst at Mirabaud Securities, that is the major drawback given that investors were hoped Meta would make significant cost reductions.
According to Bloomberg data, the company’s quarterly capital expenditure exceeded what all but 16 of the S&P 500 companies spent on capital during the entire previous year.
In 2005, Campling compared a British trade in Meta to IBM, saying that “much as IBM represents dinosaur technology 1.0, Meta runs the risk of becoming the next-generation fossil.”
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