Meta’s value has fallen by $700 billion. Wall Street calls it a “train wreck.”

Facebook’s parent company Meta Platforms is making huge investments in virtual reality, but the actual reality looks like a real disaster.

Meta shares fell 24% to their lowest level in nearly four years on Thursday after an earnings report that one Wall Street analyst called a “train wreck.” That’s a far cry from the company’s position nearly a year ago, when CEO Mark Zuckerberg announced with much fanfare on October 28, 2021 that Facebook changing its name in Meta Platforms to emphasize its focus on the “meta universe”.

Facebook was still riding high last fall, with its market value peaking at more than $1 trillion in September 2021. Revenues and profits soared as advertisers flocked to Facebook and Instagram to reach billions of users.

To be sure, virtually the entire tech industry has suffered this year, but Meta’s decline has far outpaced the overall sector, with its stock down 67% year-to-date compared to the Nasdaq’s 31% drop. period. The Meta crash resulted in a staggering loss of around $700 billion in market value.

On Thursday, Meta’s market value fell to $268 billion from more than $1 trillion in September 2021. Shares recovered slightly Friday morning, rising $1.72, or about 1.8%, to $99.66 a share.

The struggling campaign raises questions about its full bet on the metaverse, and whether the social media company could suffer the fate of other big companies whose bets on the future have not paid off. In the near term, Facebook’s core Meta business faces challenges as the economy slows and advertisers cut spending.

“Last night’s Meta results were an absolute disaster, signaling the widespread decline in digital advertising that awaits Zuckerberg & Co. as they make a risky bet on the meta universe,” Wedbush analyst Dan Ives said in a report.

The Met hit also reduced Zuckerberg’s personal fortune, as most of his wealth is tied to his 13% stake in the social media company. He is worth $37.7 billion as of Oct. 27, according to the Bloomberg Billionaires Index, having lost nearly $88 billion over the past 12 months.

Here are three key issues weighing on Meta’s stock and deepening questions about its long-term prospects.

Losses in the metaverse are $9.4 billion

During a conference call Wednesday to discuss Meta’s latest earnings, Zuckerberg told investors he was “pretty confident things are going in a good direction.”

Investors were not convinced by this. The company is betting very expensively on its ability to become a virtual reality giant and whether the technology can provide Meta’s next phase of growth.

While it can take years for large companies to make such strategic turns, as IBM and Microsoft did when they shifted from selling hardware to software, the early results for Meta have been bleak. In the first nine months of the year, Meta lost $9.4 billion at its meta universe division, Reality Labs. The company said on Wednesday that the unit’s operating losses will be “significantly” higher in 2023.

Investors are skeptical because, at least so far, consumers aren’t exactly flocking to the new metaverse. Unlike the long timelines for business creation common in Silicon Valley, Wall Street evaluates companies based on short-term profitability, rather than more nebulous projections that stretch years into the future.

Horizon Worlds, Meta’s new virtual space, has cut its goal for monthly active users to 280,000 from 500,000, but the space is attracting fewer than 200,000, Wall Street Journal reported earlier this month.

“[I]Investors should stay on the sidelines as it will be many years before progress in the meta universe can be truly monetized,” Angelo Zino, senior equity analyst at CFRA Research, told investors in a research note.

The slow growth of Facebook

By comparison, Facebook had a massive base of 1.98 billion daily active users on average in September – a 3% increase from last year.

That may sound respectable, but it’s nowhere near the massive growth Facebook experienced in previous years. And the slower growth came after Facebook said in February that it did lost users for the first time in its history.

Social media juggernaut Meta’s huge revenue has struggled with upstarts like TikTok capturing younger consumers.

Advertising problems

Meta’s lifeblood is ad revenue booked by Facebook, Instagram and WhatsApp, with companies eager to reach their billions of daily users. But ad revenue fell in the latest quarter and sales fell 3.7%, adding to investor concerns.

When it comes to advertising, Meta faces a double whammy. Slowing economic growth means advertisers are cutting spending, and the company on Wednesday pointed to an “uncertain and volatile macroeconomic landscape” for advertising. The company is also grappling with the impact of Apple’s privacy changes on the apps that run on its devices. The change means consumers can ask apps not to track them, and Facebook said it will cost it $10 billion this year.