What happened
Shares of Meta Platforms (META 0.23%) were rallying today, up 6.1% in Friday trading.
Today's only major announcement was that Meta would be cutting some prices of its newer virtual reality (VR) headsets. That actually should be a negative, as it suggests demand for the company's new metaverse products might not be as strong as hoped, given higher interest rates and recession fears.
However, basically all of Meta's revenues still comes from advertising across its family of apps. And on that front, investors may be getting more optimistic on the health of the economy as interest rates backed off recent highs today. Earlier this week, a major publication also reported that Meta's new AI tools are increasingly helpful to advertisers.
NASDAQ: META
Key Data Points
So what
On an Instagram broadcast this morning, Meta CEO Mark Zuckerberg announced it would be lowering the price of its Meta Quest Pro from $1,499 to $999, and the Quest 2 256 GB version from $499 to $429.
That isn't something that would normally enable a stock to go up, however, and it wasn't the likely reason for today's move. Although Meta has poured billions of dollars into its metaverse vision of the future, sales of its VR headsets, denoted in its Reality Labs segment, slightly declined last year to around $2.16 billion, and losses for the segment ballooned to a whopping $13.7 billion.
So, why the move higher today? Well, lots of technology stocks were moving higher in today's action, with interest rates declining after a big month-long run higher. The technology sector is especially sensitive to moves in interest rates, as many tech stocks are growth stocks with earnings far out in the future. In addition, many tech stocks are sensitive to the economy, especially those that depend largely on advertising revenue as Meta does. Higher inflation and interest rates could trigger a recession, and visa-versa.
Meta has also recently garnered optimism around its artificial intelligence chops, especially around new tools to help advertisers. Earlier this week, a Financial Times article highlighted a new AI tool called Advantage+, which uses AI to actually change text or images of an advertiser's ad, then runs algorithm-powered tests, and decides which is the best ad to use. The article quoted some advertisers as saying the new tool has helped regain nearly all of the advertising efficiency lost after iPhone iOS privacy policy changes harmed Meta's targeting capabilities starting in late 2021.
Now what
For Meta, today's big move is only getting the stock back to where it was after its recent earnings release in early February. The month of February was dictated by higher-than-expected job gains and inflation figures, which broke the three-month downtrend in inflation. That's why today's reversal of the last month's moves higher in rates is likely the reason for today's move in Meta stock and not the announcement around price cuts for the Quest line of headsets.
While lower prices could spur some additional near-term adoption of VR headsets, it's still very much an open question as to whether Meta's metaverse vision will work out and when. While the metaverse gets a lot of headlines, Meta stock's future will still largely be determined by Meta's ad-targeting capabilities and the health of the economy. And the health of the economy is likely to be dictated by incoming inflation data and moves in interest rates.
