Meta's VR/AR revenue falls to record low and losses will increase next year
Meta reports latest quarterly results and warns investors that Metaverse spending will increase meaningfully in the next year.
Meta's quarterly figures for Q3/2023 show revenues of $34.15 billion. This is an increase of 23 percent compared to the previous year. After experiencing major problems last year and seeing its share price plummet, Meta has found its way back to success this year. However, this is not yet the case for the XR division.
Looking at Reality Labs' revenue for the third quarter of 2023, the numbers confirm the downward trend of the past two years.
Meta reported revenues of $210 million for the quarter and the division, down 26 percent year-over-year. According to CFO Susan Li, this was primarily due to lower sales of the Meta Quest 2. It's the worst quarterly result since Meta began disclosing Reality Labs revenue and operating losses.
Demand for Quest 2 has been waning for some time due to a number of factors: a long dry spell of high-profile first- and second-party titles, the fact that the device is nearing the end of its life cycle, and the rather early announcement of its successor earlier this summer.
Quest 3 and Ray-Ban | Meta Smartglasses
Meta Quest 3 now bears the heavy burden of reversing the downward trend, or at least sending positive signals to the market. The device was released in October and is therefore not reflected in the current quarterly figures.
In terms of price, however, the device is aimed more at enthusiasts than the masses, and is unlikely to outsell the much cheaper, million-selling Quest 2. Only a successor in the same price range will be able to do that, if at all. Such a product is reportedly planned for 2024.
Also in October, Ray-Ban and Meta launched the second generation of their smart glasses. Meta now has two new products that should help boost fourth-quarter revenue of its Reality Labs division.
Meta looks to ramp up spending on VR/AR
Reality Labs' total expenses in the third quarter of 2023 were just under $4 billion. After subtracting revenues, that leaves an operating loss of $3.7 billion. That's about the same as a year ago. So far this year, Reality Labs' operating loss is just under $11.5 billion. This contrasts to annual revenues of about $800 million so far.
And expenses are expected to continue to rise through 2024. "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," said CFO Susan Li.
About half of the R&D spending is going into Meta's AR glasses, which have yet to be unveiled, and will reportedly not be released until 2027 at the earliest, and then only in very limited quantities. An internal developer kit and demonstration device could be shown to the public in 2024, according to the same report.
The fact that Meta is increasing rather than decreasing its investment in the Metaverse project is certainly due to the company's better position compared to last year. Meta has overcome the deep crisis of 2022 and is therefore better positioned for long-term projects of this kind. As long as Meta's advertising business is humming, the VR and AR projects should be spared major cuts.