At the direction of CEO Mark Zuckerberg, Meta has pumped tens of billions of dollars into its metaverse and virtual-reality businesses – leading to massive losses that are crushing the company’s profits.
From the start of 2019 to September 30, 2022, Meta has plowed $36 billion into Reality Labs, the division that houses its metaverse and VR units, Insider’s analysis of the social-media giant’s financial statements found.
While racking up these enormous costs and expenses, Reality Labs has reported just $5.3 billion in revenue — giving a cumulative operating loss of $30.7 billion for the period, according to Insider’s analysis.
Meta bought Oculus, the VR hardware and software maker, in 2014. In October 2021, Zuckerberg rebranded Facebook as Meta to reflect his company’s push into the “metaverse” — a term borrowed from science-fiction that refers to a new, immersive version of the internet accessed through VR and augmented reality rather computer screens.
Meta began publishing financial data for Reality Labs in the fourth quarter of 2021.
It’s been a rocky road since the big rebrand. In the fourth quarter of 2021, Meta suffered its first-ever drop in user numbers. In the second quarter of 2022, it suffered its first-ever year-on-year revenue decline. Meta’s stock price has plummeted 70.5% year-to-date, to less than $100 — a level not seen since early 2016.
Zuckerberg said at Meta’s annual shareholder meeting in May that Reality Labs would “contribute a lot to the profits of this company” in the 2030s.
Meta’s third-quarter earnings report Wednesday showed Reality Labs had accumulated an operating loss of $9.4 billion over the first nine months of 2022 — and top executives said they expected the losses to mount further.
“We do anticipate that Reality Labs operating losses in 2023 will grow significantly year-over-year,” CFO David Wehner said. Zuckerberg said the “biggest drivers” for the losses would be the launch of a new Quest headset and the impact of the first full-year salaries for staff hired in 2022.
Costs and expenses for Reality Labs amounted to $12.5 billion for the full-year 2021, and the division brought in $2.3 billion revenue.
Reality Labs investments in 2022 are on track to exceed 2021: in the first nine months of 2022, Reality Labs costs and expenses grew to $10.8 billion — while the division reported only $1.4 billion in revenue, which Meta attributed in part to lower sales of its Quest 2 VR headset.
Wednesday’s earnings report showed Meta’s third-quarter operating margin had collapsed to 20% from 36% in the same period in 2021.
A lot of spending on Reality Labs has been on wages, Meta execs have said. The company said that as of April 2022 there were more than 10,000 people working on metaverse projects. Meta’s overall headcount increased 28% in the year to September 30, per its third-quarter report.
Meta is under pressure from Wall Street to cut spending on its metaverse projects. The CEO of Altimeter Capital, a tech-focused hedge fund with a 0.1% stake in Meta, this week urged the company to slash headcount by at least 20% and limit Reality Labs investments to no more than $5 billion a year.
Meta did on Wednesday announce plans to curb costs. As well as reducing its office footprint, Wehner said hiring would “slow dramatically,” including laying off some staff.
And despite the ballooning losses at Reality Labs, Zuckerberg said Wednesday he’s “pretty confident” the company is heading “in a good direction.”
Meta didn’t respond to Insider’s request for comment.