Dive Brief:

• Meta Platforms plans to increase spending on artificial intelligence during the next year, the company said Wednesday when describing third quarter earnings. The bid comes as the social media platform faces rising challenges from economic headwinds and continued spending on Metaverse, its augmented reality project.
• “First, we are significantly expanding our AI capacity,” Meta CFO David Wehner said during a call with analysts. “These investments are driving substantially all of our capital expenditure growth in 2023.” 
• Meta said that its second consecutive quarter of sub-par results and weak fourth quarter prospects arose from shaky advertising demand, the unusually strong dollar, rising operating expenses on Reality Labs, which leads the Metaverse virtual reality project.

Dive Insight:

Meta reported $27.7 billion in Q3 2022 revenue, a 4% decline year-over-year, with profit plunging 52% to $4.4 billion, according to the company’s third quarter results released Wednesday.

Regarding its capital expenditures, the company’s bid to increase its AI capacity during the next year requires significant spending on servers and other infrastructure. Meta is building new data centers in order to provide the necessary support for its “next-generation” AI hardware, Wehner said during the earnings call.

“We expect these investments to provide us a technology advantage and unlock meaningful improvements across many of our key initiatives, including Feed, Reels and Ads,” he said.

Wehner, a 10-year veteran of the company, has served as Meta’s CFO for eight years, according to his LinkedIn profile. He will transition to the role of the company’s first chief strategy officer on Nov. 1, when Susan Li, a 14-year company veteran and Meta’s current VP of finance, will take on the CFO role, the company announced in July.

Meta’s move to expand its AI capabilities comes as the social media platform is continuing to funnel money towards its Reality Labs segment, which is responsible for the virtual and augmented reality technologies that underpin the Metaverse project. Losses for the segment were $3.7 billion during the third quarter, pushing up the segment’s total losses to $9.4 billion.

The Metaverse is an immersive virtual and augmented reality platform offering users virtual experiences including workrooms, games and educational content, according to Meta’s website.

“We do anticipate that Reality Labs operating losses in 2023 will grow significantly year-over-year,” Wehner said. “Beyond 2023, we expect to pace Reality Labs investments such that we can achieve our goal of growing overall company operating income in the long run.”

Investors, however, are expressing increasing skepticism regarding the platform’s Metaverse direction. Brad Gerstner, founder and CEO of Meta investor Altimeter Capital, wrote an open letter to the company published Monday prior to the firm’s Q3 earnings call, advising Meta to cut back on its Metaverse spending as well as reduce headcount in order to get “fit and focused” and retain the confidence of its investors.

“At the same time that Meta ramped up spend, you lost the confidence of investors,” Gerstner wrote in the letter. “The conventional wisdom — press and investor — is that the core business hit a wall last fall. As a result, the team hastily pivoted the company toward the metaverse — including a surprise re-naming of the company to Meta. Worse, this skepticism seemed to be affirmed with a nearly immediate and sizable miss in financial results and continued under-performance throughout 2022.”

As well as pushing forward with AI investments, the company is also “making significant changes across the board to operate more efficiently,” Wehner said on the call, including expected changes to its headcount, with Meta “investing headcount growth only in our highest priorities,” he said.

Meta slowed its pace of hiring in its third quarter, in keeping with plans it had disclosed earlier in the year, with hiring expected to “slow dramatically going forward,” Wehner said during the earnings call. The company is expecting to keep headcount roughly flat over the next year, he said.

The company anticipates fourth quarter total revenue will be between $30 billion to $32.5 billion.