Meta Platforms META has recently halted the development of a smartwatch with dual cameras and is instead working on producing other devices to be worn on the wrist.
Per Bloomberg, Meta’s dual-camera smartwatch was in development for two years and would have included several features like activity tracking, music playback and messaging, similar to rival Apple’s AAPL smartwatch.
Apple has been enjoying dominant market share in the smartwatch segment since the launch of Apple Watch in 2015. However, the key differentiators for Meta’s smartwatch from other smartwatches were the dual cameras.
One of the reasons behind the production of this smartwatch being stopped is the design. The presence of the second camera caused issues with another feature for translating nerve signals from the wrist into digital commands.
The ability to transmit nerve signals as digital commands, called electromyography, is a top priority for Meta as it will help in development of the AR space, metaverse. By using electromyography in their wrist devices, people can control their avatar and interact with other users in the metaverse.
Another reason why the smartwatch production has been halted is likely to be cost cuts by Meta. At the company’s last earnings call in April, Meta executives informed that the company will be reducing expenses by $3 billion due to a broader business slowdown.
Meta is prioritizing certain projects over others since they are expected to reap better return from investments, specifically in developing the metaverse, upon which the company has laid its future.
Meta’s Reality Labs division is working on developing the metaverse and diversifying income actively from the ad business model. The company has been successful so far, which is reflected in its first-quarter 2022 earnings result. Meta generated revenues of $695 million from its Reality Labs business segment in the first quarter of 2022 (2.5% of total revenues), reflecting an increase of 30.1% year over year.
Meta Platforms, Inc. Price and Consensus
Meta Platforms, Inc. price-consensus-chart | Meta Platforms, Inc. Quote
What’s in Store for Meta Platforms’ Stock in 2022?
Meta’s Sheryl Sandberg stepped down recently as the COO of the company after a 14-year stint. Sandberg pioneered Facebook’s ads business model and transformed the company into a profitable business.
Sandberg’s departure doesn’t bode well for Meta’s ad-based business model, which is the primary source of revenue for the company. Meta is under persistent pressure due to increasing scrutiny by governments worldwide due to its failure to rein in large-scale misinformation, hate speech and privacy breaches.
Meta is also suffering from Apple’s iOS changes and engagement-related headwinds.
Apple’s iOS changes have made ad targeting difficult, which in turn has increased the cost of driving outcomes. Measuring these outcomes has become difficult. Meta expects these factors to hurt advertising revenue growth throughout 2022.
Further, the ongoing Russia-Ukraine war and growing macro-economic challenges have hurt advertisers’ budgets, which is expected to negatively impact Meta’s revenue-generating ability.
Also due to rising inflation, globally customers have pulled back on their purchases. This will impact Meta’s shares negatively, as it did to its FAAMG peers — Alphabet GOOGL and Microsoft MSFT.
Meta, which currently carries Zacks Rank #3 (Hold), has seen its stock tumble 47.8% in the year-to-date period compared with the Zacks Internet – Software industry and Zacks Computer and Technology sector’s decline of 64.1% and 30.2% respectively. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Alphabet shares have lost 23.3% in the year-to-date period compared with the Zacks Internet – Services industry’s fall of 26.3%.
Microsoft shares have lost 24.7% in the year-to-date period compared with the Zacks Computer – Software industry’s decline of 26.4%.
Meta is expected to spend more than $10 billion over the next 10 years to build the metaverse.
Per Bloomberg, the metaverse market, globally, is expected to reach $800 billion by 2024. As the primary first mover in creating the metaverse, Meta is expected to seize market share rapidly in the alternate reality space. This is expected to aid Meta’s revenues in the long term and impact shareholders’ wealth positively.
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