Meta shares dip is proof metaverse plan never really had legs

Virtual reality gamble is not paying off as Mark Zuckerberg appears to be going out on a limb with avatars

After shares in Facebook’s parent, Meta, slumped by as much as 25% in the wake of abysmal quarterly results, critics intensified their calls for its chief executive to abandon his astronomically expensive pivot to the “metaverse” – a 3D virtual world intended to replace much of real-world socialising.

“The cost of Mark Zuckerberg’s metaverse ambition is clearer than ever,” said Rachel Foster Jones, a thematic analyst at GlobalData. “Meta has put its entire business on the line for the metaverse, which still doesn’t exist, and the gamble is not paying off.

“Meta has been too busy attempting to push the metaverse that it has run its core ad business into the ground, and a string of poor results has taken its toll on investor confidence.”

Meta has spent phenomenal sums of money on the metaverse since the project was announced, including more than $100bn (£86bn) on research and development (R&D) and product development in the sector – $15bn in the last year alone.

Even for the world of tech, in which trillion-dollar valuations are increasingly common, those figures are hard to explain.

Sony, which generates a full quarter of its $15.5bn quarterly revenues from video games, spends less than $5bn a year on R&D – not just for its metaverse-aligned PlayStation VR product, nor even for its entire PlayStation line, but for its entire company, which includes consumer electronics and photography businesses as well, according to its annual results.

Facebook’s R&D expenditure on metaverse technology alone rivals Apple’s reported expenditure for its entire business, which came in at $22bn in 2021. Like Meta, Apple is developing a “mixed reality” headset, but its expenditure also covers its long-term automotive project, as well as R&D for its array of extant consumer items, including every Mac, iPhone, Apple Watch and AirPod under development.

“Zuckerberg has let the narrative of the metaverse take over the company, and investors are concerned about plunging more money into this endeavour,” Foster Jones said. “The metaverse will probably not be profitable for another decade, and threats of hiring freezes are not enough to convince investors that Meta is focusing on what will pay the bills now.”

Instead, the company is predicting a further increase in capital expenditure, with costs rising more than 10% over the course of 2023. New datacentres and infrastructure to run the virtual worlds that the company is operating will cost money and provide little immediate return, said Ben Barringer, an equity research analyst at Quilter Cheviot.

“This all comes on a backdrop of weak global economic growth, competition from TikTok and BeReal for eyeballs and competition from Netflix and Disney+ for advertisers, concerns around the profitability and RoI [return on investment] of the metaverse, and the ever-present threat of regulation.”

Underlying the concerns about cost is a deeper question: where is all the money going? The company’s virtual world, Horizon, is far from industry-leading, with its simplistic appearance drawing unflattering comparisons with Linden Labs’ 2003 cult hit Second Life or Sony’s 2008 metaverse flop PlayStation Home.

Its recently released Quest Pro headset has drawn headlines for its capability – but also for its eye-watering $1,499 price. And while Zuckerberg proudly demonstrated one in-development feature for its Horizon avatars in October – legs – the next day it quietly revealed that the footage was pre-rendered from motion capture, not generated by the new headset.

It should have been a warning for the results to come: Facebook’s metaverse doesn’t have legs.


Alex Hern UK technology editor

The GuardianTramp

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