Mark Zuckerberg and Wall Street are finally meeting in the middle on the metaverse

Starting on Friday, I’ll be handing off Data Sheet to a rotating cast of Fortune writers, led by David Meyer, Andrea Guzman, Kylie Robison, and Alexandra Sternlicht. The reason: I’ve accepted another job with a digital news startup in Houston, where I spent four years prior to writing for Fortune.

It’s been my privilege to guide Data Sheet, now in its 10th year, for this brief period in its history. I didn’t always get every prediction or insight exactly right (Netflix did crack down on password sharing quickly). I might have missed some fast-arriving trends (wish I’d been on the generative A.I. train earlier). But I hope this newsletter has been occasionally insightful, frequently thought-provoking, and even a little bit entertaining. 

Many thanks to my two primary editors, Verne Kopytoff and Alexei Oreskovic, and our newsletter chiefs, Ashley Sylla and Jack Long, for all of their support. And many thanks to you, our loyal subscribers, who make Data Sheet part of your daily routine.

Now, one last Data Sheet for the road…

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It looks like Mark Zuckerberg and Wall Street have reconciled their differences.

Meta shares soared 24% in midday trading Thursday after Zuckerberg, in an earnings call, declared 2023 will be a “year of efficiency” for the Facebook, Instagram, and WhatsApp parent.

The spike partially reflected investors’ satisfaction with Meta’s fourth-quarter earnings results. The company comfortably topped analysts’ lackluster revenue projections ($32.2 billion, down 4% year over year) and issued a first-quarter forecast that fell in line with expectations. Zuckerberg also suggested that the effects of Meta’s biggest headwinds, including a difficult digital ad landscape and Apple’s punishing data privacy changes, were easing up. An announcement of a $40 billion share buyback plan didn’t hurt, either.

But the bigger factor was Zuckerberg acknowledging the need to hold some fire in the new year after maintaining a “damn the torpedoes” approach to growth in 2022. For Zuckerberg, that means “cutting projects that aren’t performing or may no longer be crucial,” “removing some layers of middle management to make decisions faster,” and “increasing the efficiency of how we execute our top priorities.” Company officials said they now project 2023 expenses of $89 billion to $95 billion, down from earlier forecasts of $94 billion to $100 billion.

“We closed last year with some difficult layoffs and restructuring some teams,” Zuckerberg said. “When we did this, I said clearly that this was the beginning of our focus on efficiency and not the end.”

Zuckerberg’s comments certainly soothed nerves on Wall Street, where investors were rattled throughout 2022 by Meta’s profligate spending. 

The company’s costs and expenses skyrocketed 64% between 2020 and 2022, while revenue only rose 36% during that time. A decent chunk of the extra spending stemmed from Zuckerberg’s insistence on pumping billions of dollars into Reality Labs—Meta’s division responsible for virtual reality, augmented reality, and metaverse initiatives—despite the unit posting massive losses.

Zuckerberg suggested in October that Meta would push full steam ahead with its approach, but a raft of layoffs announced in November and his statements Wednesday now point to a chastened CEO.

“Remember, this is a company that last quarter, everyone was like, ‘What on Earth are you doing, Mr. Zuckerberg? This is crazy,’” Jeffries analyst Brent Thill told Yahoo Finance. “And then two weeks later, he pulled back the throttle, which was at 12 on a scale of 10. He pulled it back to a 9, and now he’s back at a 7 on expenses. So he’s clearly listening to Wall Street, listening to what we all want.”

Even still, Zuckerberg remains only so willing to surrender his Reality Labs ambitions.

On Wednesday’s earnings call, Meta executives said they are not fundamentally pivoting from their plan to pioneer the next wave of technology—even as questions remain about the market for mixed reality and metaverse products. Zuckerberg suggested that Reality Labs expense cuts would be part and parcel to broader company-wide streamlining, as opposed to a fundamental retreat from the sector.

“None of the signals that I’ve seen so far suggests that we should shift the Reality Labs strategy long-term,” Zuckerberg said. “We are constantly adjusting the specifics of how we execute this. So I think that we’ll certainly look at that as part of the ongoing efficiency work.”

For now, reaching that middle ground is enough to repair Meta’s relationship with Wall Street. It’s proof that, once again, compromise is key to a happy marriage.

Want to send thoughts or suggestions to Data Sheet? Drop me a line here.

Jacob Carpenter

NEWSWORTHY

Stepping up their game. Sony reported record quarterly sales of PlayStation 5 gaming consoles and slightly raised its profit projections for 2023, Bloomberg reported Thursday. The Japanese tech conglomerate said it sold 7.1 million PlayStation 5 consoles during the holiday quarter, up from 3.9 million during the same quarter last year, offering a rare bright spot for a gaming sector that struggled throughout 2022. Sony solidly topped analyst earnings expectations, though its net income slipped 6% year over year.

Cutting its payload. Electric vehicle startup Rivian notified employees Wednesday that it’s laying off 6% of its workforce, citing the need to trim costs while also ramping up production, Reuters reported. The job cuts follow a difficult year for Rivian, which struggled to keep costs low amid supply chain snags and rising materials prices. The automaker missed its 2022 vehicle production target, which was already cut in half, and saw its stock price plummet about 80% last year.

Pay for more play. OpenAI unveiled a new subscription service Wednesday that gives customers preferred access to its hit ChatGPT chatbot for $20 per month, CNN reported. The offering marks OpenAI’s latest attempt to earn revenue from the generative A.I. chatbot, which remains deeply unprofitable due to huge computing expenses. Subscribers will see faster response times from the chatbot and get early access to new features added onto the service.

A rocky relationship. U.S. Sen. Michael Bennet (D-Colo.) called Thursday for Apple and Google to remove TikTok from their app stores, joining a growing chorus of American lawmakers pressing for sweeping restrictions on the social media platform, the New York Times reported. Bennet, a member of the Senate Intelligence Committee, cited concerns about the Chinese government’s ability to collect data and issue content mandates related to TikTok, which is owned by the Chinese company ByteDance. Bennett’s statement comes as the Biden administration continues to negotiate with ByteDance over strategies to ensure Chinese government officials do not exert undue influence over the company.

FOOD FOR THOUGHT

Dropping in on chats? Telegram might not be as safe as some users think—especially those that run afoul of Russian President Vladimir Putin. Wired reported Thursday that Russian antiwar activists and other Kremlin critics increasingly suspect that the federation’s authoritarian government has access to their Telegram chats, potentially undercutting the messaging platform’s promises of privacy. Several high-profile dissidents claim that comments and actions by Russian officials suggest the Kremlin has viewed their accounts on Telegram, a popular global service that’s often branded as end-to-end encrypted. Wired could not confirm whether Russian agents obtained Telegram messages, but the platform’s structure gives employees access to user accounts and allows the company to provide metadata to those who request it.

From the article:

Over the past year, numerous dissidents across Russia have found their Telegram accounts seemingly monitored or compromised. Hundreds have had their Telegram activity wielded against them in criminal cases. 

Perhaps most disturbingly, some activists have found their “secret chats”—Telegram’s purportedly ironclad, end-to-end encrypted feature—behaving strangely, in ways that suggest an unwelcome third party might be eavesdropping. These cases have set off a swirl of conspiracy theories, paranoia, and speculation among dissidents, whose trust in Telegram has plummeted.

IN CASE YOU MISSED IT

Elon Musk locked his Twitter account to test complaints from right-wing power users, by Christiaan Hetzner

Meta may have spent more than $88,000 per person when it laid off 11,000 in 2022, by Alice Hearing

The White House just said it agrees with Elon Musk’s point about Apple’s ‘secret 30% tax on everything.’ And don’t forget Google, by Nicholas Gordon

A battle may be shaping up between the two richest men in the world over who controls the luxury electric car market, by Christiaan Hetzner

OpenAI’s first VC backer Khosla Ventures weighs in on the future of generative A.I., by Jessica Mathews

Google’s scramble to catch up to ChatGPT may be the tech battle of the next decade, by Matt O’Brien and the Associated Press

Bitcoin could hit $1.5 million in just 7 years according to a new report from Cathie Wood’s ARK Invest, by Tristan Bove

BEFORE YOU GO

A new writing partner. Ask not what you can do for ChatGPT; ask what ChatGPT can do for your speech. David Murray, the founder and executive director of the Professional Speechwriters Association, opined Thursday in a Fortune commentary that the smash hit generative A.I. chatbot could become a mainstay of corporate communications teams. Murray noted that Coursera CEO Jeff Maggioncalda recently said he uses ChatGPT as a “writing assistant” and “thought partner” that sometimes helps him craft speeches—a potential harbinger of more A.I. writing collaboration. Understandably, Murray argued that A.I. chatbots can’t replace the human touch of a skilled, experienced writer. He also posited that the use of generative A.I. in communications will separate “those who see communication as a potential strategic differentiator, and those who see it as obligatory window-dressing.”