Metaverse Loses $4 Billion, Facebook Stock Tumbles

The company has lost $170 billion in market capitalization.

Mark Zuckerberg, CEO of Meta, testifies at a hearing at the US Capitol in Washington, on Jan. 31, 2024. Roberto Schmidt/AFP via Getty Images

Facebook owner Meta registered nearly $4 billion in losses for its metaverse and AI research wing in the first quarter, with the company’s stock crashing by more than 11 percent in a single day.

Meta reported its first-quarter 2024 earnings on Wednesday, revealing that its “Reality Labs” division suffered massive losses. Reality Labs is the company’s research and development wing focusing on immersive technologies like metaverse, virtual reality, and AI. Reality Labs registered a loss of $3.84 billion between January and March 2024 against a revenue of just $440 million. Meta began reporting Reality Labs as a separate business segment at the end of 2020. Since then, losses from the segment have exceeded $45 billion.

During the earnings call, CEO Mark Zuckerberg suggested that the firm could continue suffering losses for some more time in its AI efforts. More investments will be required before Meta makes “revenue from some of these new products” like AI, he said.

“I also expect to see a multiyear investment cycle before we’ve fully scaled Meta AI, business AIs, and more into the profitable services.”

Meta reported a 27 percent increase in revenue and a 117 percent jump in net income for the quarter compared to first quarter 2023.

However, the chief executive’s comments that Reality Labs’ endeavors will take more time to become profitable negatively affected investor sentiment, especially since the sector has already seen billions of dollars in losses.

On Wednesday, Meta’s shares closed at $493.50. The stock was trading at $436.90 as of 10:40 a.m. EST, a decline of more than 11 percent.

Meta’s market capitalization at the end of Wednesday was $1.27 trillion. During Thursday morning trading, its market cap declined to $1.10 trillion—a wipeout of $170 billion in value.

The earnings report also predicted higher expenses for Reality Labs moving forward.

“While we are not providing guidance for years beyond 2024, we expect capital expenditures will continue to increase next year as we invest aggressively to support our ambitious AI research and product development efforts,” the report said.

Despite massive losses, Mr. Zuckerberg said the company is “making steady progress building the metaverse.”

In 2022, the company had lost almost two-thirds of its value. Last year, Meta’s stock almost tripled. This year so far, Meta’s shares have risen by around 24 percent.

Meta recently celebrated 10 years of metaverse and AI work at Reality Labs. “Innovation is all about delivering new breakthroughs—and to truly do that, you need to bring those breakthroughs to the masses. We’re committed to continuing to build out in the open with partners who help pave the way. And we can’t wait to see what the next 10 years have in store,” the company said.

Harming Children, News Publishing

While Meta deals with mounting losses at Reality Labs, it has been facing other challenges, with its platforms being accused of causing harm to children, and the company engaged in a conflict with media outlets over content deals. Meta owns Facebook, Instagram, WhatsApp, and a host of other apps.

In late January, Mr. Zuckerberg attended a Senate Judiciary Committee hearing titled, “Big Tech and the Online Child Sexual Exploitation Crisis,” where parents complained their children were bullied, exploited, or molested online while using Meta’s platforms. Some said their kids suffered mental health issues like depression and eating disorders after spending time on the sites.

Mr. Zuckerberg apologized at the hearing. “I’m sorry for everything you have all been through,” he said. The reply came after the Meta CEO followed scrutiny by Sen. Josh Hawley (R-Mo.), who asked whether he has ever apologized to people who have been harmed by Meta platforms.

“You have made billions of dollars on the people sitting behind you here. You’ve done nothing to help them, you’ve done nothing to compensate them, and you’ve done nothing to put it right. You could do so here today, and you should,” the Republican lawmaker said.

In February, New York City sued five social media platforms, including Facebook and Instagram, alleging the companies were responsible for a mental health crisis among youth.

Last year, the attorneys general of 33 states filed a lawsuit against Meta, accusing the firm of implementing addictive features in their apps, aimed to “entice, engage, and, ultimately, ensnare youth and teens” while making profits off such addiction.

Meta is currently facing criticism in Britain and the European Union after it reduced the minimum age for using the app in these regions from 16 years to 13. The decision came amid concerns that children were being subjected to cyberbullying.

British Conservative MP Vicky Ford called Meta’s decision “highly irresponsible” as the company implemented the change without consulting parents.

Meanwhile, news publishers in Australia have called on their government to act against Meta after the company ended its contracts for news on Facebook. The deals had netted the publishers up to $130 million, according to the government. The contracts were due to expire.

Meta justified the decision, stating that users were not coming to their platform for news or political content.

“We want to make it clear that we are backing Australian journalism,” Australian Assistant Treasurer Stephen Jones said. “We have to ensure that [companies] who use content are paying for it. We’re not talking about some plucky little start-up; we’re talking about one of the world’s largest and most profitable companies.”

The Australian government has the authority to force Meta to arbitrate with media companies and determine the monetary value of news content.