Meta lost $3.7B on Reality Labs, but Zuckerberg still committed to metaverse bet

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Reality Labs, the metaverse division at Meta Platforms Inc (NASDAQ: META), lost over $3.7 billion in the second quarter. CEO Mark Zuckerberg pledged his commitment to the metaverse despite the losses and says he is building for the future.

In a recent earnings call, Meta revealed that Reality Labs generated $276 million in revenue, a 39% dip from Q2 last year and the lowest in two years. The firm blamed the drop on lower sales of its Quest 2 VR headset. With expenses shooting up 23% to $4 billion, the division’s operating loss was just over $3.7 billion.

The Q2 loss brings the total losses by Reality Labs to $7.7 billion in 2022. Since its launch in Q2 2020, the division has lost close to $34 billion.

Meta expects to lose even more money to Reality Labs in the future in headcount-related and operating costs, CFO Susan Li says.

“Finally, for Reality Labs, we expect operating losses to increase meaningfully year-over-year due to our ongoing product development efforts in AR, VR, and our investments to further scale our ecosystem,” Li said during the earnings call.

Despite the losses, CEO and founder Mark Zuckerberg is committed to the project.

“This is an ambitious long-term horizon, multi-faceted roadmap. There are lots of components to the Reality Labs portfolio across VR, AR, Metaverse, social platforms, neural interfaces, and we really have a long-term time horizon for evaluating the return on our investments here,” Zuckerberg stated during the call.

“I can’t guarantee you that I’m going to be right about this bet. I do think that this is the direction that the world is going in.”

AI and the metaverse are complementary: Zuckerberg

Meta, like many other tech giants, has invested heavily in artificial intelligence (AI) in recent months. The company is reportedly set to roll out a new version of its LlaMa large language model to commercial entities. LlaMa was previously only available to researchers and academics.

However, despite this interest in AI, Zuckerberg says the metaverse is still at the heart of Meta’s future.

“Our investments in AI continue. We remain fully committed to the Metaverse vision as well. We’ve been working on both of these two major priorities for many years in parallel now, and in many ways, the two areas are overlapping and complementary,” he stated.

Meta’s Horizon Worlds, its core metaverse product, has failed to take off as expected. At its peak in December last year, it recorded 200,000 active users. At the time, Meta projected the number of users would hit 500,000 by June, but it has declined to reveal the progress in its earnings calls this year.

Horizon Worlds has been heavily criticized, with even Meta employees reportedly shunning it.

The critics also include Palmer Luckey, the creator of Oculus, the VR headset startup Meta purchased for $2 billion, upon which its metaverse aspirations depend.

“It’s not good; it’s not fun…Most people on the team would agree it’s not a good product,” he said.

Zuckerberg is betting on the upcoming launch of the Quest 3 mixed reality headsets to give Reality Labs a new lease on life.

“Its mixed reality seamlessly blends your physical world and the virtual one by intelligently understanding the physical space around you…Quest 3 is going to be the first mainstream accessible device that we expect many millions of people will get to experience this technology with,” he stated.

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