Meta Smashes Profit Forecasts, But $50 Billion Metaverse Nightmare Looms

Meta (META) posted better-than-expected Q2 revenue and profit, driven by continued strength in its core advertising business. However, the staggering cash burn from its metaverse investments remains a major overhang for the company and investors.

The Key Numbers:

• Q2 Revenue: $39.07 billion vs $38.31 billion expected

• Q2 EPS: $5.16 vs $4.73 expected

• Q3 Revenue Guidance: $38.5 billion to $41 billion range

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While the topline beat was positive, the details reveal Meta's precarious position as it goes all-in on the metaverse:

• Reality Labs (metaverse unit) posted $4.48 billion operating loss in Q2

• Cumulative losses now top $50 billion since late 2020
  • Reality Labs revenue of just $371 million, up 28% year-over-year

• Modest growth shows limited consumer appetite so far

Zuckerberg Doubles Down Despite Nightmare Losses:

• Unchanged $96 billion to $99 billion expense outlook for 2024

• Narrowed capex range to $37 billion to $40 billion

  • Spending heavily on AI compute power and infrastructure
    • Plans to have 350,000 Nvidia H100 AI chips by year-end

  • Each H100 costs around $40,000

Metaverse Monetization Still A Gigantic Mystery

• Released open-source Llama 3.1 AI model with up to 405B parameters

• But no plans to sell AI tech or services to enterprises
  • Consumer VR hardware like Quest 3 sold poorly

• Faces new $3,500 competition from Apple's Vision Pro
  • Shifting more focus to smart glasses with Ray-Ban partnership

• But smart glasses still very nascent market

For Investors, $50 Billion Metaverse Bet Is High-Risk, High-Reward

While Meta's core ad business remains resilient for now, the ballooning metaverse cash burn poses critical risks:

• Lack of clear metaverse revenue path could cripple profits for years

• Capital intensive AI/infrastructure investments strain financials

• Rising competition and consumer disinterest threaten monetization

• Markets may sour if metaverse losses continue with no returns

For Meta investors, the company is effectively betting tens of billions annually on speculative, longshot hopes of striking metaverse gold. While Zuckerberg's vision may pay off long-term, the near-term $50 billion+ Reality Labs albatross can't be ignored. Investor patience may wear thin without tangible revenue traction soon.

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