Updated:

Facebook’s parent company Meta Platforms Inc. reported earnings today for the first time since its rebranding, only to see its stock lose 22% of its value in extended trading after missing estimates and issuing with a weak forecast.

The company reported fast-rising costs and also disclosed an operating loss of more than $3 billion in its new Reality Labs business unit. Meta said its core ad business also took a hit from Apple Inc.’s privacy changes, which make it more difficult for brands to target and measure Facebook and Instagram ads, as well as macroeconomic issues.

Stalled user growth has only made matters worse for Meta, which added that many of its users are shifting their attention to new features such as Reels, a short video offering that generates less revenue.

For the fourth quarter, Meta reported a net income of $10.29 billion, or $3.67 per share, on revenue of $33.67 billion, up 20% from a year ago. Meta’s total costs and expenses in the quarter came to $21.1 billion, up 38%.

The performance was worse than expected, with Wall Street looking for a profit of $3.84 per share on revenue of $33.41 billion.

Meta Chief Executive Mark Zuckerberg (pictured) tried to put a brave face on things, saying the company delivered a “solid quarter.”

“I’m encouraged by the progress we made this past year in a number of important growth areas like Reels, commerce, and virtual reality, and we’ll continue investing in these and other key priorities in 2022 as we work towards building the metaverse,” he insisted in prepared remarks.

Today was the first time the company has released a financial report since renaming itself as Meta, a decision that reflected Zuckerberg’s ambition to build a computing platform that will host the so-called “metaverse,” where digital and physical worlds will merge with the aid of augmented and virtual reality technologies. With the rebranding, Meta now breaks down its financial results into two business segments. The new Family of Apps includes Facebook, Instragram, Messenger and WhatsApp, while Reality Labs encompasses Meta’s AR and VR consumer hardware, software and content.

The Family of Apps unit pulled in $32.794 billion in revenue and reported an operating income of $15.89 billion. The much smaller Reality Labs generated just $877 million in revenue, with an operating loss of $3.3 billion.

The challenges in its core advertising business are particularly worrisome, CCS Insight Chief Operating Officer Martin Garner told SiliconANGLE. “TikTok’s strength as a competitor, and its speed of growth, bring a new dynamic for Meta – real competition in a core product area,” he said.

The after-hours slump in Meta’s stock meant the company was on track to lose more than $200 billion in market value on Thursday morning when stocks open for trading. Update: Shares closed down 26% in Thursday trading.

But the results also suggest that Meta’s ambitions of metaverse domination are still a long-term goal. More worrying for investors, though, is that Meta may well have to realize those ambitions among its existing user base. That’s because the company reported having just 2.9 billion monthly active users in the fourth quarter – meaning no growth from the previous quarter.

That lack of growth might be one reason for Meta’s somewhat downhearted guidance for the first quarter. Officials said the company is expecting first-quarter revenue of between $27 billion and $29 billion, below analysts’ forecast of $30.14 billion.

Meta Chief Financial Officer David Wehner said year-over-year growth in the first quarter will be hurt by “headwinds to both impression and price growth.” He also spoke of challenges such as “increased competition for people’s time” and the shift in engagement among Facebook users to features such as Reels, which has lower monetization rates than the News Feed and Stories.

Meta will also face increased scrutiny because the first quarter will be the first year-over-year comparison since before Apple’s iOS 14.5 update. That will allow analysts to see the full impact of the new App Tracking Transparency feature that requires developers to obtain permission from users before they can track them across other apps and websites when using an iPhone or iPad.

The feature makes it more difficult for platforms such as Meta, which relies on tracking users to deliver more targeted ads.

Pund-IT Inc. analyst Charles King told SiliconANGLE that Meta has always been good at building, buying and copying features and services people love. However, he said it has failed to address key challenges around tracking, policing and blocking toxic misinformation that’s shared and promoted on its platform.

“These challenges would be enough for most companies to take on, but years of dissembling from the company’s senior executives and the company’s ongoing reliance on advertising that requires continually surveilling its users appears to be taking a toll,” King said. “People will put up with a lot of bad behavior from their favorite businesses, but untrustworthiness is usually a bridge too far. When users begin walking away or refusing to be enticed through the gates, investors follow closely behind.”

Constellation Research Inc.’s Holger Mueller was a little kinder, telling SiliconANGLE that Meta’s financial results tell us the reason why the company decided to rebrand. That’s because its user growth has slowed down massively, he said, so it needs another trick to keep its existing users engaged.

Mueller highlighted the massive investment Meta has made in growing its metaverse prospects and said it was good to see the transparency shown there, even if it may have caught some investors by surprise.

“If anyone thought the metaverse would begin in spring 2022, they were wrong,” Mueller said. “Today’s results show it is clear it will take a little longer, require more R&D and a bigger overall investment. Most importantly, though, Meta needs to get it right — both in terms of creating a game-changing offering and in managing shareholder and investor expectations.”

At the least, said Garner, Meta failed on shareholder communications in a big way. “It is grappling with five big issues: Apple’s privacy changes in 2021 are hurting Meta’s ad sales; user growth has slowed sharply; users are shifting their content posting to short-form video; Meta is a long way behind TikTok on short-form video; and – at the same time – Meta is investing billions of dollars in the Metaverse,” he said. “Mark Zuckerberg sought to reassure markets that it has been through big transitions before, knows what it is doing and always comes out stronger. But this did not land well.”

With reporting from Robert Hof

Image: Anthony Quintano/Flickr