U.S. Pension Funds Gambled on Mark Zuckerberg’s Metaverse
Posted on 10/27/2022
Over the past five years, as many U.S. public pension funds embraced passive U.S. equity strategies, tech stocks became the beneficiaries of such passive asset owner capital. These tech stocks were major drivers of return for such institutional capital. However, as inflation pervades the world economy and central banks raise rates in the aggregate, tech stocks are being deeply impacted financially. Meta Platforms Inc. relies heavily on advertising to generate revenue and advertisers are pulling back on social media ad spend. Meta is being impacted from the result of Apple Inc.’s adverstisement-tracking changes, all of which have taken a toll on its massive advertising business.
After a series of scandals, Facebook rebranded to Meta Platforms Inc. Facebook was a top 10 U.S. equity holding for many large U.S. public pension funds. However, Meta Platforms has not fared well in 2022 and had a disappointing third-quarter 2022 earnings loss. For pension investors, Meta was lost around US$ 650 billion in market capitalization in 2022. Meta reported revenue of US$ 27.7 billion for recent times, down more than 4% from a year ago.
Horizon Worlds is a Dud?
This is while Meta’s CEO Mark Zuckerberg is taking a big bet on virtual reality (VR). Zuckerberg has dropped billions into Meta’s VR projects to pivot from its core social media products of Facebook and Instagram. For example, Meta’s Reality Labs unit posted revenue of US$ 285 million for the quarter, almost around a 49% decline from a year ago. The unit had an operating loss of US$ 3.7 billion. Meta’s core metaverse (virtual world) product is called Horizon Worlds and has less than 200,000 monthly active users. Older Americans can remember the virtual world product called Second Life, which was founded by Linden Labs. Second Life is a virtual world, but it failed to take off in users and has become a niche service. Essentially, Mark Zuckerberg’s big VR investment is less popular than Second Life.
Zuckerberg has tried to diversify Facebook by acquiring services like WhatsApp and getting into cryptocurrencies (a failed experiment). Will VR be his last stand?
