Meta Platforms META shares have tumbled 65.7% in the year-to-date period compared with the Zacks Internet – Software industry’s decline of 61.1%.
Meta’s primary source of income is its ad revenue business. However, in the third quarter of 2022, advertising revenues (99.3% of Family of Apps revenues) decreased 3.7% year over year to $27.24 billion and accounted for 98.3% of third-quarter revenues. The Family of Apps is the primary source of funding for Meta’s lofty metaverse dream, upon which the company is banking its future.
However, revenues from Family of Apps (99% of total revenues), which includes Facebook, Instagram, Messenger, WhatsApp and other services, decreased 3.6% year over year to $27.43 billion. The company expects revenues to decrease further in the coming quarter.
Meta is facing the worst downturn in its operational history. Meta’s ad revenue business is facing declining growth due to ad targeting-related headwinds created by Apple’s AAPL iOS changes.
Apple’s iOS changes have made ad targeting difficult, which has increased the cost of driving outcomes. Measuring these outcomes is tough, and Meta expects these factors to hurt advertising growth in the fourth quarter of 2022.
Meta Platforms, Inc. Price and Consensus
Meta Platforms, Inc. price-consensus-chart | Meta Platforms, Inc. Quote
The U.S. economy is facing macroeconomic turmoil due to the rising inflation and recession triggered by interest rate hikes by the U.S. Federal Reserve.
Rising inflation has also compelled both domestic and global customers to pull back on their purchases.
Consequently, the slowing economy is likely to trigger cuts in ad spending, which will impact the revenues of ad-driven internet stocks like Meta, impacting their bottom-line growth.
Meta’s financial plans to generate sufficient operating income from its Family of Apps business segment to fund the growth of its Reality Labs, which is responsible for building the metaverse, have taken a major hit. The company has been recently closing various long-term projects, which are burning a lot of cash.
Amidst such a situation, Meta has been investing heavily in AI to boost its user growth in its Family of Apps and increase top-line growth to meet its future goals of creating the metaverse.
META Investing in AI to Drive Future Growth
Meta Platforms recently utilized AI to introduce age verification technology to Facebook Dating in the United States to prevent users under the age of 18 to access experiences meant to be enjoyed as adults. Meta’s recent initiative to use AI to launch age verification in Facebook dating is likely to boost user confidence amid stiffening competition.
Meta recently launched avatars on WhatsApp. The company used AI to create a digital version of users with various features, which creates a new way of connecting with users and would be a small preview of how it would feel to communicate with others in the alternate reality of the metaverse.
META also recently announced that Liverpool football club debuted its collection of virtual apparel in Meta Avatar stores on Facebook, Messenger and Instagram. It will be available in virtual reality later this year. The recent offering of the football club’s virtual merchandise as avatars is expected to attract sports fans around the globe to Meta’s family of apps and boost user growth.
Meta is planning to build the metaverse as an independent e-commerce platform. To do so, it is investing heavily in building its virtual reality space to give customers an immersive experience in terms of various aspects like social networking and gaming.
META, which currently carries a Zacks Rank #3 (Hold), is banking its revenue growth in the coming quarters on solid return on investments from its investment in AI and ML and strategic partnerships. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
However, building the metaverse is a collective effort and as such, Meta is making strategic partnerships with PyTorch co-founder Microsoft MSFT and NVIDIA NVDA to develop and architect the required AI models for the metaverse.
Microsoft is bringing new work and productivity tools to Meta Quest Pro and Meta Quest 2 next year. These include apps like Microsoft Windows 365 and Microsoft Teams, and the ability to join a Teams meeting from inside Meta Horizons Workrooms, which will help create a seamless working experience in the metaverse.
Meta Platforms has collaborated with NVIDIA to build an AI research supercomputer, helping META AI researchers to build different AI models crucial for creating the metaverse.
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