Facebook invests billions in metaverse efforts as ad business slows


October 25 (Reuters) - Facebook Inc (FB.O) announced Monday that it will publish the financial results of its augmented and virtual reality labs as a separate entity, where it is investing billions in its ambition, the "Metaverse" and how it reported that its primary advertising business is facing "significant uncertainty".

Facebook, which reported a 17% gain for the third quarter, warned that Apple Inc's (AAPL.O) new privacy changes would weigh on digital businesses in the current quarter. The social media company reported quarterly revenue that was below market expectations, which analysts said was due to the iOS changes, according to chief operating officer Sheryl Sandberg.

David Wehner, Facebook's chief financial officer, said the company expects its investment in its hardware division, Facebook Reality Labs, will reduce total operating income by approximately $ 10 billion in 2021.

The financial commitment to this hardware-focused entity that will work on Facebook's "metaverse" ambitions comes from the company's being inundated with coverage of documents leaked and revealed by former Facebook employee and whistleblower Frances Haugen that the company decided the win over user safety. Read more CEO Mark Zuckerberg began Monday's analyst call with a defense against criticism emerging from the documents he believed painted a "wrong picture of our company".

The CEO said Facebook will be seen not as a social media company but as a company with a focus on the metaverse in the years to come. The busy term generally refers to a shared virtual environment that can be accessed by people with different devices. Continue reading

Facebook, which has invested heavily in virtual reality (VR) and augmented reality (AR), including buying companies like Oculus, formed a product team this year to work on the Metaverse. This month it announced it would hire 10,000 people in Europe over the next five years to work on this initiative. Continue reading

"This is not an investment that will pay off for us in the near future," Zuckerberg told analysts. "But we basically believe that the Metaverse will be the successor to the mobile Internet."

Wehner said Facebook Reality Labs would break out of the Facebook app family as a separate reporting segment from the fourth quarter of 2021.

The company's shares rose about 1% in after-hours trading on Monday. Facebook, whose shares are up about 20% so far this year, is about $ 85 billion away from reclaiming a spot in the $ 1 trillion club and joining newcomer Tesla Inc (TSLA.O).

MODIFICATION

In this March 25, 2020 illustration, a 3D printed Facebook logo is placed on a keyboard. REUTERS / Dado Ruvic / Illustration

The world's largest social media network is under scrutiny by global lawmakers and regulators, including the Federal Trade Commission, which has filed an antitrust lawsuit over alleged anti-competitive practices. Continue reading

The whistleblower documents, first published by the Wall Street Journal, tightened the scrutiny of the company. This includes internal research and reports on Instagram's impact on teenage mental health and whether Facebook's platforms are fueling divisions, as well as how it handled activities surrounding the January 6th Uprising and inconsistencies in the content moderation of the Company for users all over the world. Continue reading

For the third quarter, Facebook reported 2.91 billion monthly active users, 6% more than last year, but below analyst estimates.

During the call, executives emphasized the company's focus on attracting young adults, including through the short video feature “Reels”.

"We are retrofitting our teams to make care of young adults their Pole Star instead of optimizing them for the larger number of older people," said Zuckerberg.

The leaked documents highlight Facebook's lingering concerns about its appeal to younger users as rivals like TikTok are popular with teenagers. They also show the company's difficulty in dealing with users who create multiple accounts on its platform.

Facebook expects fourth quarter revenue to be between $ 31.5 billion and $ 34 billion. According to IBES data from Refinitiv, analysts had forecast sales of 34.84 billion US dollars or an increase of 24.1%.

Third-quarter revenue was also exposed to Apple's privacy policy, which made it harder for brands to target and measure their ads on Facebook. Sandberg, the COO, said Facebook expects to resolve "more than half" of the problems that led to inadequate reporting by the end of this year.

"The changes to Apple's privacy settings haven't harmed Facebook significantly, at least not yet," said Haris Anwar, an analyst at Investing.com. "Although sales and user numbers fell slightly in the last quarter, the company's profitability is still intact."

The company's total revenue, which consists primarily of ad sales, rose to $ 29.01 billion in the third quarter from $ 21.47 billion a year ago, falling short of analysts' estimates of $ 29.57 billion. Sandberg said Facebook's advertisers were also hit by global supply chain disruptions and labor shortages, which hurt advertising demand in a number of sectors and regions.

Facebook bought back $ 14.37 billion of shares in the third quarter and announced an additional $ 50 billion in share buybacks.

Reporting by Elizabeth Culliford in New York, Nivedita Balu in Bengaluru and Sheila Dang in Dallas Editing by Arun Koyyur, Peter Henderson and Matthew Lewis

Our Standards: The Thomson Reuters Trust Principles.


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