Mark Zuckerberg says 2025 will be a pivotal year for the metaverse

Meta's VR and AR division posted both record revenue and record loss in the fourth quarter of 2024.

Meta has announced its financial results for the fourth quarter of 2024.

Reality Labs, the company's VR and AR research and products division, reported revenues of $1.083 billion. This is slightly more than the previous year's record revenue of $1.071 billion.

Meta's CFO Susan Li said at the investor conference that the revenue was driven by hardware sales. This probably refers to the Meta Quest 3S and 3, as well as the Ray-Ban Meta Smart Glasses. Official sales figures are not available for any of these devices.

A day before the financial results were released, an internal memo was leaked in which Reality Labs CEO Andrew Bosworth wrote that the team "beat nearly all of last year's aggressive sales and user goals, growing RL sales >40% YoY overall".

Mark Zuckerberg said during the investor conference that the Ray-Ban Smart Glasses are "a real hit" and that 2025 is "going to be a pivotal year for the metaverse". He held out the prospect of visual improvements to Meta's proto-Metaverse Horizon.

"The number of people using Quest and Horizon has been steadily growing -- and this is the year when a number of long-term investments that we've been working on that will make the metaverse more visually stunning and inspiring will really start to land. I think we’re going to know a lot more about Horizon's trajectory by the end of this year," Zuckerberg said.

Mounting losses at Reality Labs

Reality Labs' total revenue in 2024 was 2.146 billion US dollars. This is more than in 2023, but less than in the record years of 2021 and 2022, despite the success of Ray-Ban Meta Smart Glasses and the launch of Meta Quest 3S in October 2024, as the following figures shows. Meta publishes the financial results of Reality Labs since the fourth quarter of 2020.

Reality Labs annual revenue:

• 2024: 2.146 billion US dollars
• 2023: 1.896 billion US dollars
• 2022: 2.159 billion US dollars
• 2021: 2.275 billion US dollars

These revenues are offset by disproportionately high operating losses.

In the fourth quarter of 2024, Meta invested $6.05 billion in Reality Labs. If you subtract the revenue from this, you are left with an operating loss of $4.967 billion, a new negative record.

Since the fourth quarter of 2020, Meta has invested a total of $69 billion in Reality Labs and generated approximately $9 billion in revenue, resulting in an operating loss of approximately $60 billion.

The next five to ten years will determine whether Zuckerberg's big bet pays off. In that time, it will likely be determined whether AI and AR glasses will become the next big computing platform and whether Meta can dominate it. It seems clear that VR headsets alone won't be enough to make Reality Labs profitable.

Meta Quest 3S was the best-selling game console on Amazon US last year. At the same time, there are signs that the device is off to a slow start and may not save the VR industry from a growing wave of layoffs.

Zuckerberg formulates sales target for AI glasses

There are initial signs that Meta is looking to rein in spending at Reality Labs. According to a report, Meta plans to introduce cost-cutting measures, and for the first time in a long time, Susan Li refrained from warning of increased spending next year (see the update below for a correction).

Despite the cost cuts, Meta has an ambitious hardware roadmap: according to a Bloomberg report, Meta plans to release its first full-fledged AR glasses in 2027. Oakley-branded AI glasses and a pair of higher-end smart glasses with a heads-up display are reportedly planned for 2025. And two new Quest headsets are scheduled for 2026, The Information reported last summer.

"Many breakout products in the history of consumer electronics have sold 5-10 million units in their third generation," Zuckerberg said at the investor conference, formulating a sales target for the next generation of Ray-Ban Meta Smart Glasses.

"This will be a defining year that determines if we're on a path towards many hundreds of millions and eventually billions of AI glasses -- and glasses being the next computing platform like we've been talking about for some time -- or if this is just going to be a longer grind."

Update:

The transcript of the follow-up call is now available. It contains two interesting answers, in which Susan talks about Reality Labs. I quote them in full below.

First passage:

"Thank you for the question. So, broadly speaking, we think our Reality Labs investments are kind of spread across two categories; Metaverse, which includes the VR, MR, and social platform initiatives. And Wearables, which includes our AR and AI glasses work, and we expect in 2025 that roughly half of our Reality Labs investment will be across the Wearables initiatives and the remaining half on Metaverse.

And I would say in each of those areas, there are still -- there are big product bets we’re making and there’s sort of a deep technological set of challenges that we know that we need to unlock in order to be able to bring scalable consumer products to market, which is ultimately what we’re really focused on. So, it remains one of our core investment priorities. We do anticipate that operating losses in Reality Labs will increase in 2025 as they did in 2024.

In terms of the increase, we expect our Wearables devices to be the primary driver of Reality Labs operating losses growing in 2025 across both cost revenue and operating expenses. And that really comes from our efforts to further accelerate the adoption of our AI glasses products."

Second passage:

"On the second question, which is about Reality Labs, I think that this is a place where I think Mark has kind of articulated that the vision for Reality Labs really is about building the next computing platforms, right? And to the extent that we succeed at doing that, both that will give us, I think, a really important position in terms of shaping the next computing platform and building ecosystems on top of it that we think will be very complementary to the way the Family of Apps works today.

And I think building businesses on top of that will be also, I think, a natural extension of both how our ad business works today, but you can imagine that there will be also new businesses unlocked around digital items and things like that.

But in the nearer term, I think one of the things that is driving the way we think about the 2025 investment is we are really more bullish on the importance of wearables specifically, right? And I think that has pulled our timetable on the next computing platform up. So we’re really expecting to continue to invest heavily in the wearables category to help accelerate that.

And Mark has outlined his goal of 5 to 10 million units on the next generation. And then eventually that gets you hopefully on a path to hundreds of millions of units and to really a scale consumer product. But it is a place where obviously we are paving the way in the market, and that requires investment on our part."

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