Mark Zuckerberg smiles: Meta’s profit margins are much better – and that’s partly due to a shrinking head count. Josh Edelson/AFP/Getty Images ; Isabel Fernandez-Pujol/ BI
Meta lost a staggering $16 billion on the Metaverse last year.
But Wall Street loves meta late Thursday: The company’s shares were up another 12 percent.
A big reason for this: Despite the Metaverse losses, Meta’s profit margins are much, much better.
Remember when investors were worried that Mark Zuckerberg was burning money on the Metaverse and virtual reality?
Well, that’s still the case: Last year, Meta lost $16.1 billion on its Reality Labs division, the group that develops things like Oculus glasses. In 2022 the loss was still $13.7 billion.
And these losses are getting bigger: in the last quarter of 2023, Meta lost $4.6 billion on the Metaverse.
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Zuckerberg promises investors there’s more to come: “For Reality Labs, we expect year-over-year operating losses to increase significantly due to our ongoing augmented reality/virtual reality product development efforts and our investments to further scale our ecosystem,” Meta said in its most recent earnings release.
But this time, investors seem to be completely okay with Zuckerberg’s Metaverse investments. Meta stock, already at an all-time high, is up about 12 percent on the news.
What is the reason?
Here’s a simple answer: First of all, Meta says it will continue to buy back its shares – something Wall Street always loves – and that for the first time in its history, it will reward shareholders with a dividend.
But overall, Meta has spent the last few years evicting employees, terminating leases, etc. And that has improved the company’s profits – even if Meta is in the red going forward.
Last year, Meta spent $3.5 billion to downsize. Of that, $2.5 billion went to “facility consolidation” – closing and merging offices – and another $1 billion went to “severance and other personnel costs” – laying off employees. The company now employs 67,300 people, down 22 percent from last year.
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And all of this means that Meta’s profit margins are much, much better: While revenue rose 16 percent (a number most Big Tech companies would be very happy with these days), operating income rose 62 percent and the Profit by 69 percent.
And although Zuckerberg and other Big Tech executives have said they have made cuts to make their companies more efficient and dynamic, these bottom lines are exactly the right thing: They want to show Wall Street that they can still grow their profits – even if the period of great growth is behind them and they are still pouring money into new products.
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