What can we say about Reality Labs at this point? The struggling AR, XR, and Metaverse division continues to double as a cash-hungry furnace within parent company Meta.
The company lost $4.5 billion in its second quarter ended June 30, 2024. That's significantly higher than the $3.7 billion loss it posted in the same period last year.
It's a trend that has come to define Reality Labs, which has posted annual losses of $16.1 billion AND $13.7 billion in 2023 and 2022, but Meta remains optimistic about its prospects.
Losses are expected to “increase significantly” year over year
Discussion of Meta's latest fiscal resultsSusan Li, the company's chief financial officer, said that operating losses within Reality Labs are expected to “increase significantly year over year due to our ongoing product development efforts and investments to further expand our ecosystem.”
He noted that Reality Labs actually saw a 28 percent increase in revenue in the second quarter, “primarily driven by sales of the Quest headset.” However, expenses also increased 21 percent year-over-year due to “higher personnel expenses and inventory costs at Reality Labs.”
After acknowledging the $4.5 billion loss, Li said Reality Labs remains a long-term venture that will continue to receive significant investment.
“Quest 3 is selling well and the Ray-Ban Meta smart glasses are showing very promising performance, with the early signs we are seeing in terms of demand, usage and loyalty that increase our confidence in the long-term potential of AR glasses,” he added.
Speaking about the prospects for individual Reality Labs products, Meta CEO Mark Zuckerberg said that Quest 3 sales are “exceeding” expectations. “I think that’s not just because it’s the best MR headset for the price, but because it’s the best headset on the market, period,” he added. “In addition to gaming, people are increasingly leveraging Quest’s capabilities as a general computing platform, spending time watching videos, browsing websites, extending their PC via a virtual desktop, and more.”
He said the company's Ray-Ban Meta glasses had become “a bigger hit sooner than we expected,” and suggested that was largely due to demand for AI-related hardware. In particular, Zuckerberg believes Meta's massive investment in Reality Labs has left it “well-positioned” to capitalize on that perceived AI boom.
“The last area I want to talk about is how AI is shaping our work on the metaverse, which continues to be our other long-term focus. Last quarter I talked about how advances in AI have shortened the timelines for some of our products,” he said.
“A few years ago I would have predicted that holographic augmented reality would be possible before intelligent AI, but now it looks like those technologies will actually be ready in the opposite order. We are well positioned for this because of the investments we have already made at Reality Labs.”
Yet these investments have not transformed Reality Labs into a profitable business. The segment lost $3.8 billion in the first quarter of its current fiscal year, and with further losses on the horizon, Meta looks set to spend another year burning through a small nation's GDP as it attempts to realize its vision of a mixed-reality metaverse.