Meta stock plummets after weak earnings report

Shares of Facebook's parent company Meta plummeted more than 22% after trading hours on Wednesday as the company reported lower than expected profits in the fourth quarter of 2021.

The company said it spent over $10 billion on Reality Labs in 2021, its division that is working on building and developing the Metaverse. But Meta reported $2.2 billion in revenue from the project. 

Meta, which makes nearly all of its money from advertising, reported $10.3 billion in profits during the last quarter of 2021, down from $11.2 billion it made during the same three-month period in 2020.

According to the company's earnings report, each share generated a profit of $3.67, down 5% from a year and below market expectations of $3.84 a share. On Wednesday, Meta was trading at $323 a share when the market closed but quickly fell to under $250 a share.

Meta CEO Mark Zuckerberg attributed the decline in profits to increasing competition from rival TikTok and a shift in the way users engage with content on Facebook and Instagram.

"People have a lot of choices for how they want to spend their time and apps like TikTok are growing very quickly, '' Zuckerberg said on a call with investors Wednesday. He added that Reels – short form videos that Meta has been pushing across Facebook and Instagram to combat the growth of TikTok – monetizes at a lower rate than other advertising locations like the Facebook News Feed.

Zuckerberg said Reels is now the fastest growing form of content across Instagram and Facebook. He said Meta will continue to invest in Reels as it competes for the attention of younger users with TikTok.

Last quarter, the number of daily active users on Facebook declined slightly. The drop from 1.93 billion daily active users on Facebook to 1.929 is the first time daily active users have decreased from one quarter to another. 

"TikTok is so big as a competitor already and also continues to grow at quite a fast rate," Zuckerberg said. He also preached patience as the company transitions towards prioritizing younger users and short form video content consumption, adding that advertising money will catch up.

"While video has historically been slower to monetize, we believe that overtime short form video is going to monetize more like Feeds and Stories than like Watch," Zuckerberg said.

Meta doesn't provide Instagram's daily active users, but daily active users across its suite of apps increased slightly to 2.82 billion in the last quarter.  

Despite spending over $10 billion on the Metaverse in 2021 with little to show for in return, the company remained profitable. In 2021, Meta surpassed $100 billion in yearly revenue for the first time and made over $46 billion in profit.

Last year, Zuckerberg said Meta will spend $10 billion building the Metaverse and predicted that a billion users will be hanging out and playing video games in virtual worlds by the end of the decade. In the final quarter of 2021, the company spent $3.3 billion on its Reality Labs division.

Zuckerberg said users spent more than $1 billion on virtual reality content from the Oculus Store this past year and added that Meta is releasing a "higher-end" virtual reality headset later this year.

"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. "Last year was about putting a stake in the ground for where we are heading, and this year is going to be about execution."

As it looks to build the Metaverse and compete with TikTok for users on mobile phones, Meta said it expects to face more headwinds in 2022. The company projected total revenue in the first quarter of 2022 to be between $27 and $29 billion, an increase of 3-11%.

Meta said in addition to challenges from TikTok it will continue to feel the impacts of Apple's iOS 15 privacy changes, which give users the ability to block companies from collecting and selling their data. The Apple privacy changes went into effect last summer and Meta said the first quarter of 2022 will lap a period in 2021 when the iOS changes were not in effect.

Meta said lower revenues in the upcoming quarter will also be a result of inflation and supply chain disruptions that have impacted the budgets of advertisers.

"Certain companies are dealing with supply-chain disruptions," said Haris Anwar, senior analyst at Investing.com. "In the case of Meta, there are many headwinds that are gathering pace at the same time. The company faces the impact of Apple's privacy settings, supply chain disruptions and inflation which is hurting many businesses that are forced to spend less on digital ads."