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Meta reported that its fourth-quarter results showed its biggest loss yet for its metaverse division, and it reminds us that Mark Zuckerberg’s vision of the metaverse is still very expensive.
The company’s losses in its VR division (Meta Reality Labs) hit $4.279 billion in the fourth quarter, compared with an operating loss of $3.304 billion in the same quarter a year ago. But the stock price is going up in after-hours trading as the results were better than expected.
Revenues for the VR division were $727 million in Q4, down from $877 million a year ago. It’s worth noting this was the first holiday-selling season since Meta increased the base price of its Oculus Quest 2 headsets by $100 to $400 back in August 2022. During the quarter, Meta also launched the Meta Quest Pro, an enterprise high-end version of its headset, for $1,500.
Meta has started breaking out its results from its Reality Labs division (formerly known as Facebook’s Oculus division) to give investors a sense of how much it is investing in the next version of the internet, or the metaverse, the universe of virtual worlds that are all interconnected, like in novels such as Snow Crash and Ready Player One.
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The company signaled some bad news (at least for VR software companies) in Q2 2022 when it said it would raise the prices for its Meta Quest 2 VR headsets by $100 each.
The company still expects Reality Labs losses to continue in 2023 and be even bigger than the current quarter’s operating loss. It views the division as a long-term investment. The investment is happening in the Meta Quest 3 family for consumers, the Meta Quest Pro for enterprises, and other long-term areas that aren’t being described yet. Those areas include new computing platforms, glasses and software.
“The software and social platform might be the most critical part of what we’re doing,” Zuckerberg said.
Still, he noted that both Reality Labs and the rest of Meta would still focus on being more efficient.
Meta also took a $4.2 billion restructuring charge for the fourth quarter related to the early termination of some office-space leases, redesigns of datacenter projects, and severance for employees laid off in Q4. Another $1 billion in restructuring costs will come in 2023. The charge brought down overall earnings. The company is shifting to a new datacenter architecture that will be able to handle AI and non-AI tasks at the same time.
“2022 was a challenging year, but” the company made headway in finding its way forward, said Mark Zuckerberg, CEO of Meta, in an analyst call.
Overall net income was $4.652 billion ($1.76 a share) on revenue of $32.165 billion in Q4, compared with net income of $10.285 billion ($3.67 a share) on revenue of $33.671 billion a year earlier. Meta’s (overall family of apps) daily active users were 2.96 billion on average for December, an increase of 5% from a year earlier. Monthly active users hit 3.74 billion on December 31, up 4% from a year earlier.
In after-hours trading, Meta’s stock price is up 17.75% to $180.30 a share. Analysts expected the company to report earnings per share of $2.22 on revenue of $31.53 billion. So the company missed on net income but exceeded expectations on revenues. Meta beat expectations on ad revenue ($31.25 billion versus $30.86 billion expected), Facebook daily active users (2 billion versus 1.98 billion expected) and family of apps daily active users (2.96 billion versus 2.92 billion expected).
Facebook itself had two billion daily active users, up 4% from a year earlier.
“Our community continues to grow and I’m pleased with the strong engagement across our apps. Facebook just reached the milestone of two billion daily actives,” said Mark Zuckerberg, Meta CEO, in a statement. “The progress we’re making on our AI discovery engine and Reels are major drivers of this. Beyond this, our management theme for 2023 is the ‘Year of Efficiency’ and we’re focused on becoming a stronger and more nimble organization.”
That seemed to be a response to John Carmack, one of the leaders of the Reality Labs division and more recently a consultant, quit at the end of the year and said that Meta had become too inefficient for me.
Zuckerberg has said before the company is spending money to build it in a way that would be the best platform possible, without the constraints that “our competitors place on us,” meaning Apple and its fees. Zuckerberg said that the metaverse could unlock hundreds of billions of dollars or trillions over time.
He said it was obviously very expensive, but the metaverse will be important to the way we live and he is glad to play a role in creating it.
In today’s analyst call, Zuckerberg said that AI and the metaverse are still driving the company’s strategy. He said the company is focused on short-form video as Reels is making a lot of progress. He said the company continues to invest in AI and that is helping with higher returns on ad spend. He said he hopes to bring on messaging as a new pillar in addition to Instagram.
“Generative AI is an extremely interesting area for Meta,” Zuckerberg said.
He said he was proud of the Meta Quest Pro, the first mainstream mixed reality device. He thinks that MR will eventually deliver better social experiences than you can get on smartphones.
“The MR ecosystem is relatively new and I think it is going to grow over the years,” he said. “We are setting the standard for the industry with our Meta Reality System.”
He said the Meta Quest 3 is still scheduled to debut later this year as a successor to the $400 Meta Quest 2.
The company ended Q4 with 86,400 employees, including 11,000 who remained on payroll at the end of the quarter, thanks to things like severance costs. Going forward, those folks will not be counted. Chief financial officer Susan Li said on the call that advertising demand is still impacted by the uncertain and volatile macroeconomic landscape.
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