On Wednesday, during the second-quarter earnings report, Meta revealed significant financial challenges within its Reality Labs division. The unit, responsible for developing cutting-edge virtual reality and augmented reality technologies essential for fueling the metaverse, recorded a substantial operating loss of $3.7 billion.
During the second quarter, the unit’s sales in Reality Labs amounted to $276 million, reflecting a decline compared to the $339 million revenue achieved in the previous quarter. This performance fell significantly short of analysts’ expectations, as they had projected sales of $421 million and operating losses of $3.5 billion for Reality Labs.
Following Meta’s report of an 11% surge in revenue, primarily driven by a rebound in advertising, the company experienced a positive response in the market, with shares rising approximately 5%. Additionally, Meta’s optimistic sales forecast for the third quarter further bolstered investor confidence. However, despite these positive developments, the financial results indicate that Meta remains heavily reliant on its advertising business, which represents a significant cost center for the company.
In the previous year, Meta’s Reality Labs division incurred substantial losses, amounting to a total of $13.7 billion, despite generating $2.16 billion in revenue, partly attributed to the sales of Quest-branded VR headsets. During the first quarter, Reality Labs faced further challenges, recording a loss of $3.99 billion. As a result, the cumulative losses for the unit have now reached approximately $21.3 billion since the start of last year.
According to its earnings report, Meta foresees a significant year-over-year increase in operating losses within its Reality Labs unit. This projection is primarily attributed to the company’s continued focus on product development in the augmented reality/virtual reality space and its investments aimed at expanding and strengthening its ecosystem.
In June, Meta unveiled a new VR subscription service named Meta Quest+, priced at $7.99 per month. This subscription is compatible with Meta’s Quest 2, Quest Pro, and the forthcoming Quest 3 headsets. With Meta Quest+, users gain access to two fresh VR games every month, and they can enjoy playing these games as long as their subscription remains active.
In June, Zuckerberg disclosed information about the Quest 3 headset, coincidentally just a few days before Apple’s announcement of its Vision Pro VR and AR headset, slated to release in 2024 at a staggering cost of $3,499. In contrast, the Quest 3 will be offered at a much more accessible starting price of $499. The Quest 3 boasts a sleeker design, being 40% thinner than its predecessor, the Quest 2, and will be equipped with a cutting-edge Qualcomm chipset, representing a significant leap in performance, as stated by the company.