Meta Will Continue Burning Billions Of Dollars Until Something Happens
4:21 PM EDT on October 27, 2022
What could you do with $22 billion? You could buy each of the 10 most expensive islands for sale on privateislandsonline.com, 40 times each. You could buy almost 220 tons of the world's most expensive caviar. If you wanted to invest that $22 billion in tech businesses, you could spend your money making like eight of the greatest and most expensive video games and still have 12/13ths of your money left over. You could buy Defector Media. My point is, it should be prohibitively difficult to blow such a ridiculous sum of money, even if you were trying to do so in some sort of Brewster's Billions scenario. You can't store that much caviar, or buy an island more than once. We should hail Facebook/Meta, then, for their world-historic achievement in the field of self-immolation, as the company's pivot to the metaverse continues to cost them astronomical amounts of money and has sent their fortunes into the toilet.
If it seems like we've written about Meta's failures before, that's just because, unlike the metaverse, this story has legs. The last time we checked in on Mark Zuckerberg, his company had just reported its first year-over-year decline in profits and revenue. TikTok was eating Instagram's lunch, the company was facing the specter of the idea of the hint of the future possibility of future regulation, and Zuckerberg had decided that the best way to deal with the structural problems waylaying his stupid company was to take a more direct, unforgiving approach to the way the business was being run. In the summer of 2021, the then-trillion dollar company all but admitted that their only path to preserving their status as a market-bestriding colossus was to build the digital architecture for the next technological paradigm. The metaverse represented, in their view, the only real bet they could make on fundamentally shifting their fortunes and escaping something like a death spiral. How's it going? The disastrous numbers Zuck revealed during a third-quarter earnings call this week have cratered Meta's valuation to such a hilarious degree that it's now worth less than Home Depot.
The narrative pushed by Zuckerberg during this week's earnings call is the same it was in Q2: immediate trends are worrisome only if you choose to focus on them at the expense of the transformative work we're doing in developing the metaverse. The problem is, every single number presented by the Meta people about their present and future was successively more gruesome: a four percent dip in revenue from Q3 2021, net income down 52 percent over the same period, a period in which costs rose by 19 percent, to $22.1 billion. The virtual reality arm of the company alone lost $9.4 billion this year, and company honchos said they expect that "figure will grow significantly" in the coming years. Meta's stock price dipped 22 percent after the call, hovered south of $100 for the first time since Jan. 2016, and brought Jim Cramer to literal tears.
Again, this is not discordant with what Zuckerberg has said about the short-term pain necessary to build a video game for fewer than 200,000 people, though that doesn't make it good or true. There is little evidence, whatever the metaverse turns out to be—A workplace? A virtual space to upload your consciousness after your body decays? A place to fuck?—that its development is being driven by anything other than a sense of belief by some of the most powerful interests in the world that they can create what comes next simply by deciding what they want to come next. But the Oculus Rift S is not the lathe of heaven, and if you burn an increasing number of billions of dollars every year to try and make it so, eventually you will run out of billions of dollars. That is currently what is happening.
Meta is not alone among tech companies struggling to justify themselves now that the music has stopped and the money tap has run dry, though they are in a significantly worse place than any of their competitors (nobody else is out here getting fined $25 million for campaign finance disclosure whoopsies). It is also worth underscoring what a seismic change the Meta-centric vision represents for the company formerly known as Facebook. The core of the business that grew so big so fast is selling ads to users against content generated for free by their friends, or, better yet, tiny Korean dogs. It has run up against the limits of how far that can take you, and as the cheap-money, all-growth, costs-don't-matter economy twists into a shrinking, paranoid knock-off of itself, Meta necessarily must use its position to pivot into something generative before it collapses under the weight of its own contradictions. As John Herrman wrote for New York, switching your ad-centric business, built on strategically borrowing from and buying out competitors, over to a metaverse architecture business is a much more fundamental shift than even Meta wants to admit. The problem is, nobody seems to be all that interested in the core product, and that core product has cost Meta roughly the GDP of Togo. There's no reason this has to work, no matter how much Mark Zuckerberg wants it.