NYU Professor of Finance “Yet to Hear from Meta on How it Plans to Make Money on The Metaverse

Reducing Costs

The news that Facebook’s parent company Meta is laying off more than 10,000 of its 87,000-strong workforce in a bid to restructure its business and reduce costs is not going down well.

Blaming the cull on changing online commerce trends — a consequence of Covid lockdowns — and the global financial downturn, Mark Zuckerberg, Meta’s CEO, has recently said:

“Fundamentally, we’re making all these changes for two reasons: our revenue outlook is lower than we expected at the beginning of this year, and we want to make sure we’re operating efficiently across both Family of Apps and Reality Labs.”

With a reported $10 billion spent on its Metaverse project, things aren’t looking bright for the Silicon Valley-based company.

Aswath Damodaran, a Stern School of Business professor of finance at New York University (NYU), joined CNBC’s ‘Power Lunch’ yesterday to discuss Meta’s Metaverse adventure.

Dive into The Metaverse

“I think the layoffs are a very small part of the story,” Damodaran began. “If you look at the last earnings report, and if you look at what’s happened to Meta over the last year, year and a half from their trillion-dollar market cap in July of 2021, the biggest change has been the dive into the Metaverse.”

Damodaran then said the $10 billion spent so far for its Metaverse, as well as another $90 billion planned for something that is uncertain or speculative, is not a concern. What is a concern, however, is that the professor of finance has yet to hear a story on how they plan to make money on the Metaverse.

In October 2021, Zuckerberg rebranded Facebook to Meta and outlined his vision for the future with a focus on the Metaverse.

“We believe the metaverse will be the successor to the mobile internet, we’ll be able to feel present — like we’re right there with people no matter how far apart we actually are,” Zuckerberg had said at the time.

“What is the business model they plan to use?” said Damodaran. “I think that’s the lacking that I find surprising. If you spend a hundred billion, you have the obligation to at least lay the groundwork for ‘here’s what we plan to do in the Metaverse and here’s what we plan to make’. We haven’t heard that from Meta and that’s really surprising when making that big a bet,” he added.

Is it difficult times ahead for Meta? Who knows? But Damodaran — who also teaches on the TRIUM Global Executive MBA Program, an alliance of NYU Stern, the London School of Economics and HEC School of Management, and for the Master of Science in Global Finance (MSGF), which is a joint program between Stern and the Hong Kong University of Science and Technology — seems to have his finger on the pulse.

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Feature image: Aswath Damodaran, CNBC’s ‘Power Lunch’

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