Facebook shares plunge after profits drop

The company said it expects revenue growth to slow next quarter in part because users are spending less time on its more lucrative services. Facebook also cites inflation as a weight for advertiser spending. The results show that user bases in the US and Canada – two of the company’s most profitable markets – have stagnated in recent years.

In first quarter earnings since change name in OctoberMeta has also disrupted its Reality Labs segment, providing investors with insight into the health of its virtual and augmented reality consumer business unit. is at the heart of metaverse efforts.

The name change is part of a bold strategic shift from Mr. Zuckerberg to bet the company’s future on VR headsets, AR glasses and virtual worlds. called the metaversein which users can live and work.

The company reported a profit of $10.3 billion for the fourth quarter, below analyst expectations of $10.9 billion and down slightly from a year ago. This marks Meta’s first decline in net income growth since Q2 2019.

The Reality Labs unit posted a loss of $3.3 billion, a number that has grown consistently in recent quarters.

Earnings, released after the market close on Wednesday, followed a tough January for US stocks. It was worst month for the tech-heavy Nasdaq Composite as of March 2020 as an investor Consider how an increase in interest rates could affect on the expensive valuation of the technology sector.

Shares of Meta have fallen more than 7% in January alone, extending a slide of more than 16% from the company’s record high close on September 7 until Tuesday’s close.

“We have to keep an eye on things like how sensitive ad businesses are to price hikes and price increases,” said Daniel Newman, principal analyst at Futurum Research, a company that focuses on digital technologies. inflationary. “How strong is Facebook in an inflationary environment? Can they continue to raise prices even as economic growth slows? ”

If Google’s parent

Alphabet Inc.

be any indicator, Meta’s ad business should be fine. Alphabet on Tuesday report its fourth-quarter earnings, with revenue growing 32% year-over-year to $75.3 billion for the period.

As part of the company’s groundbreaking VR and AR business, Meta will provide historical information for the segment, showing investors how the business has grown over the previous five quarters and three years. recent financials. Of particular interest to investors will be how sales of the company’s VR Quest 2 headset increase during the 2021 holiday shopping season.

When announcing the name change in October, Zuckerberg said that the company expected “to invest many billions of dollars over the next many years before the metaverse reaches scale.”

Savvy investors know that new directions signify new spending — and since the metaverse isn’t well defined, I think they’re expecting [Meta] Kim Forrest, chief investment officer of investment firm Bokeh Capital, said. “But first moves aren’t guaranteed to succeed — just ask Myspace.”

The strategic turning point came as the company continued to grow its user base. Last month, CNBC reported that Instagram hit 2 billion monthly active users, a 100% increase since June 2018.

The latest earnings come as Meta continues to face criticism from lawmakers and users over The Wall Street Journal’s revelations “Facebook Files” , indicating that the company knows that its platform is riddled with vulnerabilities that could cause harm. Those articles promote congressional hearingspromote a reprimand from Facebook’s supervisory board and company leaders paused activity on an instance of its Instagram app focus on children.

The company has also endured a series of executive departures in recent months. Most notably are CTO Mike Schroepfer, head of Facebook’s crypto effort David Marcus, and head of the company’s Messenger division Stan Chudnovsky. announced their departure from the company in the last 4 months of 2021.

Write letter for Salvador Rodriguez at salvador.rodriguez@wsj.com and Deepa Seetharaman at Deepa.Seetharaman@wsj.com