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Meta (the company formerly known as Facebook) reported that its virtual reality game, app, and hardware business generated $877 million in revenue in the fourth quarter, up from $717 million a year earlier.

But it’s clear what the company means when it says VR is an investment, as the division lost $3.3 billion in the quarter, compared to a loss of $2.09 billion in the fourth quarter a year earlier.

Meta broke out its virtual reality division — Meta Reality Labs — for the first time and showed how the business is growing over time. Mark Zuckerberg, CEO of Facebook, announced in October that the company was changing its name to Meta and it was investing (i.e., losing) more than $10 billion a year in the metaverse, or the next generation of computing. Meta also changed the company’s Oculus Quest 2 VR headset name to Meta Quest 2, and its division is called Meta Reality Labs.

Meta’s stock has fallen 23% in after-hours trading to $247.25 a share. That’s a big chunk of lost market cap, as its closing valuation was $898.5 billion.

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Zuckerberg disclosed those numbers and made those changes to show just how serious the company is about the metaverse, the universe of virtual worlds that are all interconnected, like in novels such as Snow Crash and Ready Player One. He noted that Facebook will launch its high-end VR headset later this year.

“In October, we announced that “Meta” would be our new name and laid out our vision for the metaverse. When we shared our plans at Connect, I said this is not something we’re going to do on our own,” said Zuckerberg, in a statement. “The metaverse will be built by creators and developers, it will be interoperable, and it will touch many different parts of the economy. In the months since it’s been exciting to see lots of other companies share their own plans for the metaverse and how their experiences and products might show up too. And I look forward to partnering with many of them as we all work to bring this to life together.”

A screenshot from Mark Zuckerberg's press briefing in the metaverse. Reuters:
A screenshot from Mark Zuckerberg’s press briefing in the metaverse from Reuters on YouTube (https://www.youtube.com/watch?v=ugTxyXB6yOo)

And clearly, the fourth quarter was a high water point for sales of Meta Quest 2 headsets and the accompanying games and apps.

Overall, Meta’s other businesses such as Facebook, Instagram, and Messenger are generating a lot of revenues and profits to finance the investment in the metaverse. Overall, Meta reported net income of $15.9 billion on revenue of $32.8 billion for the fourth quarter ended December 31.

David Wehner, chief financial officer at Meta, said in a statement that the company expects 2022 capital expenditures, including principal payments on finance leases, to be in the range of $29 billion to $34 billion, unchanged from the company’s prior estimate.

“Our planned capital expenditures are primarily driven by investments in data centers, servers, network infrastructure, and office facilities,” Wehner said. “As we discussed previously, this range reflects a significant increase in our artificial intelligence and machine learning investments, which will support a number of areas across our Family of Apps. While our Reality Labs products and services may require more infrastructure capacity in the future, they do not require substantial capacity today and, as a result, are not a significant driver of 2022 capital expenditures.”

Back in 2020, Reality Labs generated a net loss of $6.62 billion on revenue of $1.14 billion for the full year.
In 2019, the company generated a loss of $4.5 billion on revenue of $501 million. That means that the revenues per quarter have been growing. In 2021, Reality Labs lost $10.2 billion as the company ratcheted up its metaverse investment.

Meta hired more than 3,700 employees in the fourth quarter, bringing the total to 71,970 employees.

“On the hardware front, we’re seeing real traction with Quest 2. People have spent more than $1 billion on Quest store content, helping virtual reality developers grow and sustain their business,” Zuckerberg said. “We had a strong holiday season and Oculus reached the top of the App Store for the first time on Christmas Day in the US. We’re working towards a release of a high-end virtual reality headset later this year and we continue to make progress developing Project Nazare, which is our first fully-augmented reality glasses.”

As for the metaverse, Zuckerberg said Meta is focused on the foundational hardware and software that are required to build an immersive, ​​embodied internet that enables better digital social experiences than anything that exists today.

“As for software, Horizon is core to our metaverse vision. This is our social VR world-building experience that we recently opened to people in the US and Canada,” Zuckerberg said. “And we’ve seen a number of talented creators build worlds like a recording studio where producers collaborate or a relaxing space to meditate. And this year, we plan to launch a version of Horizon on mobile too, that will bring early metaverse experiences to more surfaces beyond VR. So while the deepest and most immersive experience are going to be in virtual reality, you’re also going to be able to access the worlds from your Facebook or Instagram apps as well, and probably more over time. This will enable us to build even richer social experiences where you can connect with friends in the metaverse whether they’re in VR or not.”

He also said the company is investing in avatars, and the company recently aligned its various avatars across platforms.

“Making meaningful progress across all seven of these areas is going to improve the services we offer today and will help power a more social, intuitive, and entertaining metaverse, where people, businesses and creators can all thrive,” Zuckerberg said. “This fully realized vision is still a way off, and although the direction is clear, our path ahead is not yet perfectly defined. But I’m pleased with the momentum and progress we’ve made so far and I’m confident these are the right investments to take us forward.”

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