Breakingviews - Meta's spending splurge starts to look troubling - Reuters

NEW YORK, Oct 26 (Reuters Breakingviews) - Meta Platforms’ (META.O) contiguous is indicating problems for the future. The societal media institution plans to put astir a tenth of its $370 cardinal marketplace capitalization connected assorted projects, including its concentrated stake connected the metaverse. Last year, existing operations generated capable currency to warrant the spending spree. If results gaffe – and the 3rd 4th suggests they could – spending volition go a problem.

The institution said connected Wednesday that gross successful the 3 months ending Sept. 30 fell 4% from a twelvemonth earlier to astir $28 billion, somewhat higher than expert expectations, according to Refinitiv. Profitability is worsening significantly, however. Mark Zuckerberg’s institution posted operating income of $5.6 billion, astir fractional of what it was successful the 3rd 4th of 2021, arsenic margins besides declined considerably.

Part of the occupation is that its halfway concern of selling advertizing connected apps including Facebook and Instagram is getting stale. Daily progressive users inched up to astir 2 billion, conscionable 3% higher year-on-year. Ambitions successful the metaverse, which allows radical to trot astir a virtual satellite arsenic avatars, volition instrumentality clip to nutrient results. Revenue from the part dubbed “Reality Labs” was a specified $285 cardinal successful the latest quarter, astir 1% of the company’s total.

Meta expects superior expenditures to beryllium betwixt $32 cardinal and $33 cardinal for 2022. Data centers, servers and web infrastructure relationship for immoderate of it, and a large slug besides funds the metaverse initiative. Last year’s $59 cardinal successful operating currency travel underpinned Zuckerberg’s bold initiative. In 2020, currency travel was lone a spot higher than the existent estimated range. Next year’s fig is pegged arsenic precocious arsenic $39 billion.

The third-quarter apical enactment was little than successful the 4th fourth of 2020 portion operating income dropped to the lowest level since the three-month play ending successful June 2019, suggesting that spending projections whitethorn soon outrun currency produced from Meta’s regular businesses. Dialing backmost capex makes sense, but it would unit Zuckerberg to recalibrate the timing, and possibly the power, of the metaverse.

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CONTEXT NEWS

Meta Platforms said connected Oct. 26 that gross successful the 3rd 4th decreased 4% compared to the aforesaid 4th past year, to $27.7 billion. The anticipated fig was $26.9 billion, according to expert estimates gathered by Refinitiv.

The institution said that regular progressive users grew to astir 2 billion, a 3% summation year-on-year.

Editing by Jeffrey Goldfarb and Sharon Lam

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