Meta Platforms’s metaverse losses will get worse before they get better. The company’s Q3 results showed the biggest profit shortfall and lowest revenue for its Reality Labs division since the final quarter of 2020, the first period for which the Facebook parent released separate results for its metaverse unit.
Not only is Meta having trouble attracting users to its project, shareholders outright detest it. But the company is holding firm to its vision.
“We do anticipate the Reality Labs operating losses in 2023 will grow significantly year-over-year,” David Wehner, Meta’s chief financial officer, said in a statement accompanying the results. He offered only lukewarm solace for the future: “Beyond 2023, we expect to pace Reality Labs investments such that we can achieve our goal of growing overall company operating income in the long run.
Revenue from the metaverse branch was $285 million, barely more than half the year-ago figure, largely due to low Quest 2 headset sales. Operating costs rose to $3.6 billion in the latest quarter, contributing to an operating loss of $12.7 billion since Q3 last year.
Meta largely attributes the shortfall to manufacturing costs for its new Meta Quest Pro virtual-reality headset, manufactured this quarter and is available for sale as of yesterday. But with a retail price triple that of predecessor, Meta Quest 2, the $1,500 headset is currently all cost against unproven income.
Wall Street was not happy with the company’s increased focus on the metaverse, and Meta’s stock traded down about 20% after hours.
Analysts have warned that the high costs for metavers infrastructure would not produce returns satisfactory to shareholders. “Many investors feel like they’re taking their eye off the ball,” says Brent Thill, managing director at Jefferies.
“It’s a scale of investment that I think investors are a little bit more wary of,” adds Mark Shmulik, managing director and senior analyst of U.S. internet at asset manager and researcher AllianceBernstein.
Though the company announced a series of workplace-related partnerships with MicrosoftMSFT and Zoom that will bring office functionality into its metaverse, the initiatives don’t seem to promise short-term returns.
If investors didn’t already like the level of investment into its Reality Labs division, Zuckerberg’s commitment to the metaverse during the company’s earning call was anything but reassuring.
“This is some of the most historic work we’re doing,” he said, breaking down Reality Labs’ work into four sectors: the Horizon World metaverse social platform, virtual and augmented reality applications and the infrastructure behind them.
“Investors feel like there’s too many experimental bets,” Thill added during the call.
Reality Labs’ woes were accompanied by a drop in revenue from company properties like Facebook, Instagram and WhatsApp, which skidded 4% from the Q3 2021 to $27.4 billion. Earnings per share were only $1.64, compared with consensus expectations of $1.90.
Focus on the metaverse comes as advertising revenues are under pressure because of macroeconomic issues and the battle between Meta’s Instagram and ByteDance’s TikTok for a younger audience.
“There’s probably a view out there that says, look, the more they spend on the metaverse, the more they’re acknowledging that the decline of the core business is more imminent than we might have thought,” Shmulik says.
This article was first published on forbes.com