Meta is still haemorrhaging cash through Meta Quest purveyor Reality Labs, but what's new?
Meta's virtual, augmented, and mixed reality business, Reality Labs, lost $3.84 billion during the first quarter of the current fiscal year. But that's just business as usual for the division, which reported losses of $16.1 billion and $13.7 billion across 2023 and 2022, respectively.
Facebook parent Meta shared the news in its fiscal report for the first-quarter ended March 31, 2024, and noted that Reality Labs revenue totalled $440 million. That represents a year-on-year increase of 30 percent and was driven by Meta Quest headset sales.
Although the unit lost over $3.84 billion dollars during Q1, that's actually a slight improvement on the near $4 billion loss it recorded this time last year.
Meta CFO Susan Li expects Reality Labs' losses to "increase meaningfully" year-over-year due to ongoing product development efforts and investments that are designed to scale its ecosystem.
Notably, Li suggested Meta has made a "good start" to the year and claims Reality Labs is making "important progress." That positive news comes with Meta having just finished laying off thousands of workers.
In a separate earnings call, Meta CEO Mark Zuckerberg expanded on those remarks and explained "that an increasing amount of our Reality Labs work is going towards serving our AI efforts." He also conceded the company needs to "find better ways to articulate the value that’s generated here across both segments (Reality Labs and Family of Apps) so it doesn't just seem like our hardware costs increase as our glasses ecosystem scales but all the value flows to a different segment."
In a follow-up call, Zuckerberg said he's "really optimistic" about Meta's decision to build new computing platforms within Reality Labs and feels that emerging hardware such as mixed-reality glasses are becoming an important part of the business.
"I mentioned in my remarks up front, that one of the bigger areas that we're investing in Reality Labs is glasses. We think that that's going to be a really important platform for the future," he said.
"Our outlook for that, I think, has improved quite a bit because previously we thought that that would need to wait until we have these full holographic displays to be a large market. And now we're a lot more focused on the glasses that we're delivering in partnership with Ray-Ban, which I think are going really well. And so that, I think, has the ability to be a pretty meaningful and growing platform sooner than I would have expected."
The reality right now, however, is that Reality Labs is losing money—and will continue to lose money—hand over fist for the foreseeable future. Meta has acknowledged that poses a pretty overt business risk, and in a 10-Q filing said that if its Reality Labs investments fail to deliver results in the longer-term, its overall "business and financial performance will be harmed."
"We are also continuing to increase our investments in new platforms and technologies, including as part of our efforts related to building the metaverse. Some of these investments, particularly our significant investments in Reality Labs, have generated only limited revenue and reduced our operating margin and profitability, and we expect the adverse financial impact of such investments to continue for the foreseeable future," wrote the company, outlining why losing unfathomable amounts of cash each year might be problematic.
"For example, our investments in Reality Labs reduced our 2023 overall operating profit by approximately $16.12 billion, and we expect our Reality Labs investments and operating losses to increase meaningfully in 2024. If our investments are not successful longer-term, our business and financial performance will be harmed."
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