Meta stock is tanking the most ever — five key takeaways from the earnings that caused the rout

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Shares of Meta Platforms Inc. collapsed as much as 26 per cent on Thursday morning, its biggest drop ever,  after the tech giant, formerly known as Facebook, posted fourth-quarter results that came up shy of analyst expectations and offered disappointing guidance.

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Meta earned US$3.67 per share in the fourth quarter, short of Bloomberg analyst estimates of US$3.86 per share, on total revenue of approximately US$33.7 billion. The company is also forecasting US$27 billion to US$29 billion in revenue for the first three months of 2022, three to 11 per cent growth year-over-year but still less than investors had anticipated. Here’s a look at five key takeaways from the earnings, in which the company broke out the financial performance of its “Reality Labs” division for the first time.

1. Increased headwinds

Meta attributed its subdued forward guidance to a number of factors, including increased competition and hits to advertisers’ budgets. But it also singled out privacy changes made by Apple Inc. that make it more difficult for brands to target ads to certain users, something on which Facebook has relied. Shares responded to the guidance by shedding more than 20 per cent of their value after markets closed, plunging below US$250 from a close of US$323.00

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2. Banking on the metaverse

Meta founder and chief executive officer Mark Zuckerberg told investors that building the metaverse will be one of the company’s priorities throughout 2022. Last year, the company rebranded as “Meta” to signal a pivot to the metaverse with plans to develop the company’s Horizon Worlds online virtual reality (VR) game.

“We are focused on the foundational hardware and software that are required to build an immersive, embodied internet that enables better digital social experiences than anything that exists today,” Zuckerberg said during the conference call.

On the hardware side, he added that the company saw strong holiday sales with the Oculus Rift VR headset, and the company was working towards the release of a high-end virtual reality headset later in the year. A mobile version of Meta’s Horizon Worlds is set to release this year as well.

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3. A new reality

For the first time, Meta broke out the cost of its investment in the Metaverse, separating the “Reality Labs” segment from its “Family of Apps” with which consumers are already familiar. The results showed Meta lost more than US$10 billion on Reality Labs over the course of 2021. This came after a US$6 billion operating loss in 2020.

In its release, the company stated that while it expects Reality Labs’ products and services to require more infrastructure capacity and investment in the future, these investments are not needed in the near-future and should not be a significant driver of 2022 capital expenditures.

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4. The company is on a hiring spree

Despite the weaker forward guidance, Meta saw its headcount grow by 23 per cent for the fiscal year to 71,970 people. This comes as the company is ramping up hiring, with research and development costs rising by 35 per cent and marketing and sales costs growing by 34 per cent.

Tech giants have been warring with each other for tech talent to build out their software teams, particularly as companies like Meta and Microsoft race to launch metaverse products. This month, a report by the Wall Street Journal found that approximately 100 people have left Microsoft’s HoloLens AR team to join Meta.

5. One big happy “Family of Apps”

Meta’s legacy apps, the so-called “Family of Apps”, which includes Facebook, Instagram, Messenger, WhatsApp, and others, saw modest growth in daily active users at eight per cent year-over-year to 2.82 billion people. Revenue in this segment was reported at approximately US$32.8 billion, growing by 15 per cent quarter-over-quarter from approximately US$28.5 billion.