Zuckerberg's nightmare is hard to wake up: Meta growth will bring down the metaverse, and the Metaverse will be difficult to do

Following the release of the first eye-popping "Metaverse" financial report two months ago, META once again announced a mixed financial report after the market close on April 27, Eastern Time.

The "worry" is mainly because the financial report shows that the company's total revenue in Q1 in 2022 was US$27.91 billion, lower than the average FactSet analyst's expectation of US$28.28 billion, a year-on-year increase of 7%, For 2012 The slowest growth rate since listing. Operating margin was 31%, down from 43% in the first quarter of last year.

Meanwhile, the company gave second-quarter revenue guidance of between $28 billion and $30 billion, below analysts' forecast of $30.6 billion.

The "hi" mainly includes that the company's net income for the quarter was US$7.465 billion, although it fell 21% year-on-year and has fallen for the second consecutive quarter, but it was higher than analysts' expectations of US$7.1 billion. Earnings per share were $2.72, beating consensus estimates of $2.56. Meanwhile, Facebook's average daily active users in March was 1.96 billion, up 4% year-on-year, better than analysts' average forecast.

At the financial report conference, Zuckerberg said that he will slow down some of the investment in artificial intelligence infrastructure, business platforms and reality labs. It is expected that the total expenditure in 2022 will be 87%. - Between $92 billion, down from the previous forecast of $9-95 billion.

After the release of the Q2 financial report, META's stock price soared by nearly 20%. As of after-hours trading on April 27, eastern time, META’s stock price was $207.08, an increase of 18.37%.

Since the beginning of this year, META is one of the top five FAANG technology stocks that has collapsed after Netflix. As the company's first "Metaverse" financial report released in February this year showed that the company's profits fell more than expected, its revenue prospects were bleak, and its daily active users decreased, Meta's stock price has fallen by nearly 44% after the release of the financial report, and the company's market value has lost nearly 3880 yuan. One hundred million U.S. dollars.

But although the release of the first quarter financial report seems to rekindle market confidence, META is still facing the increasingly fierce battle for social platform users, privacy headwinds in advertising business, continuous heavy investment in Metaverse business, Russia and Ukraine. Unfavorable factors such as increased uncertainty brought about by the war are superimposed, and the long-term outlook is still unclear.

The main business of "advertising" is facing adversity

As the mainstay of the company's revenue, META's advertising business is not doing well.

The financial report shows that Meta’s advertising revenue in the first quarter was US$26.998 billion, a year-on-year increase of 6.1%, which was lower than market expectations and lower than the year-on-year growth rate of advertising performance in each quarter of 2021, which is also the year 2021. The lowest level since the second quarter. Among them, in the first quarter, the ad impressions of the app series increased by 15% year-on-year, and the average price of each ad decreased by 8% year-on-year.

The reasons for the lower-than-expected advertising revenue include that the Russian-Ukrainian war affected the advertising of European companies. In Q1 of 2022, Europe was the only market in which META's advertising revenue declined. Revenue in the quarter was 6.364 billion yuan, slightly lower than the 6.373 billion yuan in the same period last year.

The adjustment of Apple's ios privacy policy also has a persistent negative impact on META's advertising revenue. In the fourth quarter of last year, Meta estimated that the impact was expected to be at least $10 billion due to changes to the iOS privacy policy. In the first quarter of this year, META also emphasized that IOS 15 will affect advertising growth goals and performance measurement.

META's advertising revenue is currently facing strong headwinds. Next, the EU's control of META and other technology giants will continue to have an adverse impact on its main business.

On March 24 this year, the European Union announced the Digital Markets Act (DMA), which targets Apple, Google, Meta, Amazon and Microsoft in antitrust governance. In regulating the business conduct and market dominance of the top five companies in Europe. Once Silicon Valley giants violate the DMA, they will face fines of up to 10% of their global annual turnover in the previous fiscal year, as well as fines of up to 20% for re-offending, and even risk being split.

Following this, on April 23, the European Union agreed on broad terms of the Digital Services Act (DSA). The bill would force tech companies to take greater responsibility for the content that appears on their platforms, including faster removal of illegal content and merchandise, explaining to users and outside researchers how their algorithms work, and taking more action against the spread of false information. strict action. Companies can face fines of up to 6% of their annual turnover if they fail to comply.

These two bills are likely to take effect later this year, superimposed on Apple's ios privacy policy, the uncertainty of the Russian-Ukrainian war, and factors such as inflation and macro supply chain impact on advertisers' budgets, META's advertising business The outlook is undoubtedly overshadowed.

User growth has recovered but unfavorable factors remain

As the world’s largest social application software, META’s growth in active user scale has flattened, increasing The aggressive short video platform TIKTOK's competition for users has greatly affected the growth rate of META's active users. The company's daily active user base fell by 2 million in the fourth quarter of last year.

However, the growth rate of META's user activity in the first quarter of this year exceeded market expectations. According to the financial report, the average daily active users in March was 1.96 billion, a year-on-year increase of 4%, which was better than the average analyst expectation. Average monthly active users were 2.936 billion, a year-on-year increase of 3%.

Affected by the Russian-Ukrainian war, in the European market, META's user data performance is poor - 307 million daily active users, lower than 309 million in the same period last year; 418 million monthly active users, lower than Compared with the 423 million in the same period last year, it is also the lowest level since the first quarter of last year. During the earnings call, META expects that global monthly active users will be affected by the withdrawal from the Russian market, and that global monthly active users will remain flat or even decline.

Average revenue per user (ARPP), a measure of the monetized user base, was only $7.72 in 22Q1, down from $7.75 a year earlier and the lowest level since Q4 2020.

META is developing short video product Reels to deal with competition from TikTok. In the earnings conference call after the Q1 earnings release in 2022, Zuckerberg said that Reels is developing rapidly. Users spend 20% of their time watching Reels' short videos on Instagram and 50% of their time on Facebook. short video.

The prospect of the Metaverse business is still vague

Meta announced the company's Metaverse business related performance for the first time in its financial report in February this year, which is collectively referred to as For FRL (Reality Labs, Facebook Reality Labs), including hardware, software and content related to AR (Augmented Reality) and VR (Virtual Reality).

Zuckerberg previously mentioned that in the next 1-3 years, Facebook will be in the stage of laying the foundation for the metaverse, and the investment will inevitably lead to a huge increase in costs, and the development of the metaverse will not be achieved overnight, short-term Internal profit margins are limited.

In Q1 22, the total revenue of this business was US$695 million, down 20.7% from US$877 million in the fourth quarter of last year, but higher than analysts' expectations of US$677.1 million. In the first quarter, the revenue of this business accounted for 2.49% of the total revenue, and the operating loss reached 2.960 billion yuan.

Last December, Meta took its first step toward making the Metaverse a reality — launching Horizon Worlds, a virtual reality platform. The platform includes Horizon Worlds for life and entertainment, Horizon Venues for large-scale events such as concerts, and Horizon Workrooms, a VR office platform. A place where users can gather with friends in the form of virtual people, and can meet, talk and interact by wearing VR headsets.

The users of this platform have grown rapidly. In February of this year, the number of users has exceeded 300,000, and the number of newly created worlds has exceeded 10,000. But problems arose: Many women spoke out about sexual harassment and assault in Horizon Worlds and its sister platform Horizon Venues.

In the wake of this sexual harassment incident, Meta announced a "Personal Boundary," which acts as a force field around an avatar to keep others from getting too close. Meta says that Personal Boundary is always on by default and cannot be turned off. In the future, the company will decide whether to add new controls, such as allowing users to customize the size of their Personal Boundary.

The backwardness of user network infrastructure also hinders the expansion of the meta universe. At the Mobile World Congress (MWC) held at the end of February this year, Meta Vice President Dan Rabinovitsj (Dan Rabinovitsj) pointed out that the current home network and mobile network are far from "metaverse". "be prepared.

The "high commission" of the meta platform has caused widespread controversy in the market. In February of this year, it was reported that Meta would take a high percentage of creators' earnings. In April, Meta began to test Horizon Worlds' platform transaction function, namely in-world purchases: for WEB and mobile users, Meta will take a 25% commission from it. For users who enter through the Oculus VR headset, Meta takes a commission of up to 47.5%.

Although META's commission is compared to similar Roblox platform's 75.5% commission is lower, but the nearly 50% commission may also make creators dissatisfied and the platform grow.

This has also attracted some complaints from competitors. For example, Apple spokesman Fred Sainz said in an interview with the media: "Meta has repeatedly accused Apple of taking 30% of iOS developers. % commission on in-app purchases, and now Meta charges these developers more than any other platform. This approach fully exposes the hypocrisy of Meta. On the one hand, they want to use Apple's app store platform for free; on the other hand, I want to squeeze creators and small businesses on my own platform.”

In the first quarter of 2022, despite better user data and higher-than-expected profits, META's growth alert has not been lifted - including policies, wars, inflation, macroeconomics and other factors affecting performance growth, and The growth of the advertising business is expected, and the business prospects of Metaverse are not yet clear.

What is the future prospect of Meta? No one can tell. It's just that the road to success will be difficult and long.

Author | Li Xindi

source: Zuckerberg's nightmare is hard to wake up: Meta growth will bring down the metaverse, and the Metaverse will be difficult to do

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