In October 2021, Mark Zuckerberg went all-in on the metaverse. He had a vision of people existing in virtual worlds and he was going to be the one to make it happen. He was so committed that he changed the name of the corporate company from Facebook to Meta Platforms, and his stock ticker to META.
It was a disaster almost from the start. The demos were campy and adoption was nearly nil. Shares cratered, falling to $134 from $384, a drop of 65%. Near those lows in October 2022, Zuckerberg began to back away from the Metaverse. He trimmed spending and emphasized "efficiency". It was exactly what the market wanted to hear and shares have soared since, hitting a record $796 earlier this year.
The market today is looking for something of a redux of the November 2022 trade.
Various media reports say Zuckerberg is "considering potential budget cuts as high as 30% for the metaverse group next year."
Now that group isn't just the metaverse but also includes some heavy bets on virtual reality, especially in gaming. Those haven't been as badly derided as the metaverse but they've hardly been a success. Bloomberg reports that group has lost more than $70 billion since the start of 2021 (META's market cap is currently $1.6 trillion).
The Ray Ban Meta glasses are something of a hit and are being emulated by others, so it's not clear exactly which parts of the spending are being trimmed. In any case, investors love it when Zuckerberg focuses on bringing costs down as shares are up 3.5% today.
For me, this looks a bit like fighting the last war or trading the last trade. The key right now for Meta is to catch up in the AI race. There are obvious uses for generative AI at Facebook and Instagram that could prove very useful for the company and advertisers. That's a strong bull case but the market has recoiled at poor execution. Their AI product is called Llama and early versions were on-par with the models everyone is using today but they quickly fell behind and have struggled to catch up.
That prompted Zuckerberg to fire many of the people in the AI department and go on a borderline-insane spending spree on talent, offering salaries at (or above) the top sports stars in the world to attract talent. From here the performance of the shares will depend on whether that proves to be a good investment or not.
