What happened
Shares of Meta Platforms (META 2.05%) are rising today, up by 4.9% as of 11:41 a.m. ET. The gains came despite a report from The Wall Street Journal that claimed Meta is falling short of internal company projections for user growth in its metaverse platform, Horizon Worlds.
Investors shrugged off the negative news, with the stock trading at a low valuation ahead of third-quarter earnings results. Meta's share price does look a bit oversold after falling 60% year to date.
So what
As Meta transitions to short-form video formats and grapples with Apple's privacy changes to iOS and the resulting impact on advertising, CEO Mark Zuckerberg has the company investing significant resources to build the metaverse. Meta reportedly was aiming to reach 500,000 monthly active users in Horizon Worlds by the end of the year, but it's now hoping to reach 280,000 after falling short thus far.
Expectations are very low for Meta Platforms and the digital advertising space, which generates virtually all of its revenue. The social media giant reported a 1% year-over-year decline in revenue last quarter. Meta has also faced increasing competition from rival TikTok, which grew in popularity during the pandemic.
Now what
No one really understands what the metaverse is going to be, how people will use it, or when it will be ready for prime time. It's not contributing any meaningful revenue to Meta yet, other than sales of the Quest 2 virtual reality headsets. The Reality Labs segment, including virtual reality hardware, makes up less than 2% of Meta's revenue.
Right now, investors care more about the company's upcoming earnings report on Wednesday, Oct. 26, and what that will say about the near-term direction of advertising revenue. The stock trades at a low price-to-earnings ratio of 13.8, so it won't take much growth to justify that valuation.
