The metaverse may be the steady financial leak that sinks Meta’s ship, as the economic waters become more turbulent. Meta founder and CEO Mark Zuckerberg has been spending roughly $10 billion a year on virtual reality (VR) and augmented reality (AR), which may be the future of computing. For now, that vision is only lowering the company’s value, especially as skeptical investors scrutinize Meta’s social media core assets (Facebook, Instagram, and WhatsApp).
Since the company changed its name from Facebook to Meta in 2021—a nod to its metaverse ambitions—its stock is down about 72%. On Nov. 7, the Wall Street Journal reported that Meta will execute mass layoffs later this week, although the number of staff cuts is unknown.
The question now is: Will those cuts come from Meta’s Reality Labs unit, the team largely responsible for developing metaverse hardware and software?
Meta investors want a reality check on metaverse spending
Facebook had already tapped the brakes on new hires and selected projects in an effort to rein in costs, according to a Reuters report in May. Soon after, the company also froze hiring and investments in other units. That stoked murmurs on Wall Street of potential layoffs to follow. At the time, Zuckerberg reportedly told staff during an internal all-hands meeting on May 12: “I can’t sit here and make a permanent ongoing promise that as things shift that we won’t have to reconsider [layoffs], but what I can tell you is that as of where we sit today, our expectation is not that we’re going to have to do that.”
Meta revealed during Meta’s third-quarter earnings report in October that it had 87,314 employees, an increase of 28% from the same period in 2021. Meta’s Reality Labs unit accounts for over 17,000 workers, nearly 20% of the company’s staff, according to The Verge.
If mass layoffs do come to pass, they may also impact Zuckerberg’s metaverse team. “We expect to end 2023 as either roughly the same size, or even a slightly smaller organization than we are today,” Zuckerberg said during Meta’s third-quarter earnings call (pdf) on Oct. 26. That “slightly smaller” comment was the first real indication that Meta might have been planning cuts as far back as last month.
Meta is spending tens of billions on AR, VR, and Horizon Worlds, a VR social network Zuckerberg envisions attracting 1 billion VR users. But a profitable metaverse may still be a decade away. “An estimated $100 billion+ investment [over the next 10 years] in an unknown future is super-sized and terrifying, even by Silicon Valley standards,” Brad Gerstner, the CEO of Altimeter Capital, a major Meta investor, wrote in October.
Layoffs won’t curtail Zuckerberg’s metaverse obsession
Yet Zuckerberg doesn’t appear to be ready to deprioritize his metaverse pursuits, despite warnings from investors. Last year, Meta lost more than $10 billion on its Reality Labs operation, and the losses have only accelerated. The company’s losses related to the metaverse in 2022 are already over $9 billion, which means Meta will likely exceed its 2021 immersive computing losses.
In 2021, Meta’s Reality Labs unit only pulled in $2 billion in revenue for the entire year. So far, revenue in 2022 is only $1.4 billion. The revenue-to-expenditure imbalance is central to why investors are worried about Zuckerberg’s metaverse push.
Even if the upcoming layoffs include metaverse-focused staffers, Zuckerberg has hinted that he has no plans to shift Meta’s direction as he hunts for the immersive internet white whale.
“Look, I get that a lot of people might disagree with this [metaverse] investment,” Zuckerberg said on Oct. 26 during an earnings call with investors. “But from what I can tell, I think that this is going to be a very important thing, and I think it would be a mistake for us to not focus on any of these areas, which I think are going to be fundamentally important to the future.”