Meta Investors Are In No Mood For Zuckerberg’s Metaverse Moonshot

Meta Platforms Inc. is essentially running two operations: the social media platforms including Facebook and Instagram, which make all the money, and a massive project called Reality Labs that’s trying to build a digital world called the metaverse. While it’s not unusual for a technology company to invest heavily in a moonshot, Meta’s bet has become divisive at a moment when its social media revenue is slipping. “They are really taking on a massive science project—it’s essentially the Manhattan Project,” says Kamran Ansari, a venture partner at Greycroft Partners and early angel investor in Meta back when it was called Facebook.

Meta’s stock has fallen more than about 70% this year, and on Nov. 9 the company announced it was cutting 11,000 jobs, or 13% of its workforce. Shareholders are valuing every dollar of the company’s sales at half those of Alphabet, Pinterest and other peers, and a third less than Snap’s or the average company’s in the Nasdaq 100 index. Research firm Monness, Crespi, Hardt & Co. wrote that Wall Street sees Meta’s virtual-reality aspirations as the “enemy within the walls.” Shareholder Altimeter Capital Management has called on the company to cut its “super-sized and terrifying” metaverse investment to half of what it spent last year.

There may be another option: Separate the businesses and let the metaverse develop outside the glare of the public markets. “You could raise separate funding for it or take it private and have Zuckerberg and others finance it,” says Greycroft’s Ansari. “It’s very doable—you’ve seen companies split up and spin stuff off.” Separating Reality Labs could unlock cash for the core business, which is coping with a slowing advertising market, new privacy features on Apple Inc.’s iOS devices that make ads less effective and increased competition from TikTok and its ilk.

Zuckerberg renamed his company last year in a nod to his aspirations, saying that Facebook, Instagram and messaging service WhatsApp are how people connect now, but that an immersive combination of virtual and augmented reality is the future. Still, he’s said it could take a decade to realize this vision. There’s precedent for building high-risk businesses privately. Elon Musk brought his rocket company SpaceX to life outside Tesla Inc.; Amazon.com Inc.’s Jeff Bezos did likewise via Blue Origin.

Meta’s main business is valuable. It’s still “the premier social advertising platform,” according to John Blackledge, an analyst at Cowen & Co. Facebook and Instagram are cash cows, producing almost all of the $116 billion in revenue analysts expect from the company this year. Although Meta is facing a turbulent economy, so are its rivals. What the competition isn’t doing is funneling about 1 of every 10 dollars it brings in into a metaverse venture. Reality Labs contributes less than 2% to Meta’s revenue.

The virtual-reality division traces its origins to the 2014 acquisition of headset maker Oculus. Currently, accessing the metaverse means strapping on a bulky headset and navigating an avatar through 3D video games, fitness apps and a virtual hangout space called Horizon World. Reality Labs’ revenue comes mainly from sales of headsets, and it missed analysts’ estimates by 30% last quarter, according to Bloomberg data.

Zuckerberg has defended the spending. “The future doesn’t just happen,” he said at an October product launch. There is business in virtual reality. The entire metaverse-related industry—including games, live entertainment, hardware and services—could bring in almost $800 billion in 2024, according to Bloomberg Intelligence. Meta has announced partnerships with Microsoft Corp. and Accenture Plc to develop business uses for its technology and plans to weave it in to today’s social media apps. It might have luck pitching investment in a discrete metaverse company to corporations that want to bet on enterprise applications, Ansari says.

Wall Street goes through fads when it comes to corporate structure. Sometimes investors look for “synergies” between businesses; other times they want companies to “stick to their knitting.” One case for keeping Meta together is the same thing shareholders are worried about: If growth in the core social business is plateauing, it could make sense for Zuckerberg to look for something entirely new. And with interest rates rising and tech investors getting nervous, this is a tough time for a venture that lost $10 billion last year to try to go it alone. “A separate company with that kind of burn rate in this market is probably not a welcome situation,” says James Lee, managing director at Mizuho Securities USA.

Meta has tried to go big just when investors are more skeptical—of everything—than they’ve been in years. “Investors’ mindset is always ‘what have you done for me lately,’ ” Lee says. “We see a little bit of conflict between what investors are thinking versus what the company’s thinking.” 

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