Meta has no choice but to spend billions of dollars on building out the metaverse if it wants to control its future, Goldman Sachs tech analyst Eric Sheridan argued.
"Taking a step back from the recent stock performance (both year to date and in the after-market), we see platform/infrastructure investments by Meta (which started in mid-2020) as both a) continuing to build independence from a volatile range of outcomes from future mobile OS platform changes; and b) aligned with a strategic shift toward short-form video and from the social graph to the interest graph," Sheridan wrote in a note to clients on Thursday.
Nevertheless, Wall Street continues to have a bone to pick with the digital world being created by Mark Zuckerberg dubbed the metaverse.
Meta stock crashed 22% on Thursday as the Facebook and Instagram owner continued to spend aggressively to build out its metaverse. The build out contributed to a 1,600 basis point plunge in Meta's third quarter operating profit margins.
Meta execs signaled that the torrid pace of spending on the virtual platform will persist well into 2023. The social media platform outlined about 13% year-over-year expense growth for fiscal year 2023, well above the Street's forecast of 7%.
Morgan Stanley analyst Brian Nowak estimates Meta could spend a whopping $69 billion in capex alone in the next two years to help support various initiatives, including the metaverse.
Nowak sees these investments as a signal of "higher required structural capital intensity" going forward as Meta adjusts to the post-IDFA social media landscape that is more driven by short-form video.
Meta's outlook also wasn't very good.
Meta's fourth quarter revenue guidance came in between $30 billion and $32.5 billion while Wall Street was expecting $32.2 billion.