Meta Platforms (FB 1.12%), formerly known as Facebook, is scheduled to report fiscal 2021 fourth-quarter earnings on Wednesday, Feb. 2. The company made a splash in its most recent quarter's announcement when it indicated a significant shift in business focus to the metaverse.
Meta will be allocating a tremendous amount of resources to the project for several years. Investors will surely want to hear more details about the plan and its progress thus far.
Image source: Getty Images.
Meta Platforms is investing billions in the metaverse
When it announced third-quarter results on Oct. 25, Meta Platform unveiled grand intentions for the metaverse. To separate its core social media business from longer-term projects like the metaverse, Meta said it would begin reporting results for two segments: Facebook Reality Labs (FRL), and Family of Apps. The metaverse will sit inside the FRL segment along with augmented and virtual reality. Ultimately, Meta's plan in the metaverse is to create an environment that more realistically resembles the way people communicate when they are face-to-face.
Already, the company expects its investments in FRL to reduce overall operating profits in its fiscal year 2021 by $10 billion. But that is just the start; it expects to increase these investments over the next several years. Indeed, Meta said total operating expenses would be $70.5 billion at the midpoint in FY21. Management projects it will expand to a midpoint of $94 billion in FY22. In other words, Meta's development of the metaverse is no small project. At $10 billion in FY21, the investment is roughly 14% of overall expenses.
In Meta's Q3 conference call on Oct. 25, CEO Mark Zuckerberg said, "This is not an investment that is going to be profitable for us anytime in the near future... The sort of the business North Star that I mentioned in some of my opening remarks are we hope that by the end of the decade, we can help a billion people use the metaverse and support hundreds of billions of dollars of digital commerce."
In its fiscal year 2020, Meta generated $86 billion in revenue and $32.7 billion in operating profits while it boasted over 3 billion monthly active users across its family of apps. Consumers could spend more time there if the metaverse is a more natural form of communication than social media apps. Meta's metaverse could earn just as much in revenue and operating profit as its social media business is generating right now. It remains to be seen if its metaverse business will exist side by side with its social media apps or replace them. Regardless, Zuckerberg must envision the transition to be lucrative, judging by the massive investments being allocated to its development.
What this means for Meta Platforms investors
Analysts on Wall Street expect Meta Platforms to report revenue of $33.38 billion and earnings per share (EPS) of $3.84. If it meets those projections, it would be an increase of 18.90% and a decrease of 1.03%, respectively, from the same period the year before. The drop in EPS may be something shareholders will need to expect over the next several quarters as Meta invests in the metaverse.
Although the initial market response to its shift to the metaverse was positive, the stock is down 10% in the last three months while tech stocks broadly have been sinking. Investors should brace for sustained volatility in Meta's stock as news of the billions of investment continues for the next several years. This could be especially true if sum totals of reinvestment figures are not supplemented with evidence of tangible progress.
