What happened
Shares of Meta Platforms (META 1.55%) jumped 26.8% in November, according to data provided by S&P Global Market Intelligence. To put it succinctly, the company made moves during the month to improve its profits, and the market appreciated this. After all, the stock plummeted over 75% from its highs because its metaverse ambitions degraded its profit margins in the first place.
So what
Facebook stock hit an all-time high in September 2021, less than two months before announcing its name change to Meta Platforms. By changing the company's name, management unveiled its priority to pursue the development of a digital, interactive world -- the metaverse.
Over the past 12 months, Meta Platform's Reality Labs segment -- the metaverse division -- has generated revenue of $2.3 billion. But the loss from operations for Reality Labs is an astronomical $12.7 billion. And these hefty metaverse losses coincide perfectly with the free fall for Meta Platforms stock.
NASDAQ: META
Key Data Points
The company's stock rose early in November as founder and CEO Mark Zuckerberg announced Meta Platforms was laying off 11,000 employees. It's hard to think of this as a good thing for the stock since real people were affected. But the market is focused on profits, and Zuckerberg's announcement pointed to improvement.
It wasn't just layoffs. Zuckerberg wrote, "We are also taking a number of additional steps to become a leaner and more efficient company."
According to Reuters, some of these additional steps for Meta Platforms included phasing out of some hardware products, including its smartwatches. And according to Bloomberg, the company also declined to renew some of its leases in New York City, saving some money there, as well.
All of these moves help shore up Meta Platforms' profitability, and that's primarily why the stock rallied in November. For its part, the S&P 500 was up 5% -- a good month for the market average -- which contributed to Meta's gains.
Now what
Before getting too optimistic about the company's cutbacks, investors should remember that next year should still be an expensive one for Meta Platforms. Specifically, with Reality Labs, management said, "We do anticipate that Reality Labs operating losses in 2023 will grow significantly year over year."
In my opinion, Meta Platforms is still completely committed to pursuing its metaverse strategy -- hence, the anticipated increase in operating losses next year. The biggest problem with this strategy is the recent decline in revenue for the segment. Third-quarter revenue of $285 million for Reality Labs was down 49% year over year.
Investors need to watch revenue for Meta Platforms' Reality Labs in the coming quarters. Management has expressly said to expect losses to continue, even though it's cutting spending in some areas. Therefore, investors shouldn't expect the metaverse pursuit to be profitable for now.
Hopefully, shareholders will at least be rewarded with outsized revenue growth. If not, it's fair to question Meta's strategy going forward.
