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Metaposts multibillion-dollar losses for its RealityLabs division

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Highlights of the story

  • Meta has posted a $4 billion loss in its Reality Labs division.
  • The division generated revenue of just $340 million, below estimates.
  • Meta plans to pour $10 billion into the division over the next two years.

Betting on the metaverse and VR has become an expensive one. In today’s Q1 2023 earnings report, Meta has shown how expensive this division has become. Reality Labs, the division at Meta responsible for the development of its MetaQuest hardware and VR/gaming tech. Posted his second biggest loss. So far. Meta posted an operating loss of $3.9 billion in the first 3 months of 2023, up from $2.9 billion in 3Y 2022.

Meta
Disadvantages of Metareality Labs

According to Meta Earnings, the division generated just $339 million in revenue. Analysts expect The division will generate $613.1 million compared to a loss of $3.8 billion. Meta included a statement in its report, saying it expects to continue losing money on Reality Labs through the end of 2023. “We expect Reality Labs’ operating losses to increase year over year in 2023”.

Reality Lab’s revenue has shrunk over the past few years, while its operating expenses and losses have only increased. While Q1 2023 revenue was 339 million, last year’s Q1 came in at 895 million. In an earnings call today, Mark Zuckerberg reiterated that he will continue to invest in MetaReality Labs and Metaverse, combining Metaverse tech with AI.

Meta
Reality Labs Revenue and Loss Breakdown by Quarter

Metaverse proved to be a costly bet for Mark Zuckerberg, who shifted his company’s focus to virtual reality. According to Zuckerberg, the division will continue to lose large amounts of money in the coming years. In 2021 and 2022, Meta More than 10 billion dollars have been spent. is investing in its Reality Labs division, much to the chagrin of Wall Street, and this year’s spending is likely to be higher than in previous years.

Interest in the metaverse exploded with the NFT and crypto craze of the last 2 years. Major banks and consulting firms surmised that Metaverse It will be worth billions of dollars By the end of the decade, however, reality had begun to take hold. Earlier this year, Meta announced. Thousands of jobs lost Which also affected its Reality Labs division.

“Metaverse” refers to a virtual world where people can interact with each other’s avatars. So basically, any RPG game that has come out in the last 3 decades. Roblox is, by definition, the metaverse, and so is Minecraft. However, the buzzword of the metaverse began during the pandemic, a time when the future of work and interaction went into question.

The push for Metaverse was driven by trend-chasing VCs who had little understanding of the gaming market, touting their portfolio companies as the next big thing. We’ve seen the rise (and fall) of NFT games, NFT/metaverse gaming consolesand even major publishers joined in and gave up on the craze.

Meta’s own Metaverse, called Horizon Worlds, is an exclusive game for the company’s own Meta Quest headset. Despite the company’s billions of dollars invested in the division, Horizon Worlds lacks customers. Horizon Worlds has only Hundreds of thousands of active players, with only 1 in 10 players Return to the game.

Meta
Horizon Worlds users control avatars and can interact with others.

Meta’s losses at its Reality Labs division show just how far the company’s management is on gaming. We see no future where these losses can be remedied. For reference, The entire VR gaming market is undervalued. from Meta’s annual losses in its VR division. The division will continue to lose money, and we don’t know when Reality Labs will even become profitable.

Meta posted blowout earnings outside Reality Labs. The company posted revenue of $28 billion, beating expectations. However, it shouldn’t be overlooked that the company’s Metaverse bet is a failure, no matter what, and companies in gaming and tech that continue to invest in Metaverse will know that it’s a never-ending battle. There is money. Gamers themselves aren’t interested, otherwise VR gaming would be a huge market.

There is also another headwind for the meta. Apple plans to release a high-end VR headset sometime this year. Meta’s MetaQuest headset Already struggling With both sales and customer retention. Earlier this year the company cut prices for the MetaQuest headset amid poor sales. Apple’s entry into the fray can only prove disastrous for Meta.

So what’s next for Reality Labs? The company continues to invest in gaming content, with more than 150 games coming to MetaQuest devices. Consumers aren’t interested in what reality labs have to offer, and newcomers like Apple have the potential to take the crown in VR/AR/metaverse hardware and content. The concept of the sunk cost fallacy is correct, and it seems that Meta should cut its losses as soon as possible.

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