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Meta reported that its fourth-quarter results showed the biggest loss yet for its metaverse division, and it’s a reminder that Mark Zuckerberg’s view of the metaverse is still very expensive.
The company’s losses in its VR (Meta Reality Labs) division were $4.279 billion in the fourth quarter, compared to an operating loss of $3.304 billion in the year-ago quarter. But the share price rises in after-hours trading as the results came in better than expected.
Revenue for the VR division was $727 million in Q4, down from $877 million a year ago. It’s worth noting that this was the first holiday sales season since Meta raised the base price of its Oculus Quest 2 headsets by $100 to $400 in August 2022. During the quarter, Meta also launched the Meta Quest Pro, a premium business version of its headset, for $1,500.
Meta has begun publishing the results of its Reality Labs division (formerly known as Facebook’s Oculus division) to give investors an idea of how much it is investing in the next version of the Internet, or the metaverse, the universe of virtual worlds that are all connected, like in novels like Snow crash and Done player one.
The company signaled some bad news (at least for VR software companies) in the second quarter of 2022 when it said it would raise prices for its Meta Quest 2 VR headsets by $100 each.
The company still expects Reality Labs losses to continue into 2023 and even exceed the current quarter’s operating loss. It views the division as a long-term investment. The investment will be in the consumer Meta Quest 3 family, the enterprise Meta Quest Pro, and other long-term areas not yet described. Those areas include new computing platforms, glasses and software.
“The software and the social platform are perhaps the most critical part of what we do,” Zuckerberg said.
Still, he noted that both Reality Labs and the rest of Meta would still focus on working more efficiently.
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 data center projects and severance payments for employees laid off in the fourth quarter. There will be another $1 billion in restructuring costs in 2023. The costs reduced the total revenue. The company is transitioning to a new data center architecture that can simultaneously handle AI and non-AI tasks.
“2022 has been a challenging year, but” the company made progress in finding its way forward, Meta CEO Mark Zuckerberg said in an analyst call.
Total net income was $4.652 billion ($1.76 per share) on revenue of $32.165 billion in the fourth quarter, compared to net income of $10.285 billion ($3.67 per share) on revenue of $33.671 billion a year earlier. Metas (total family of apps) daily active users averaged 2.96 billion in December, up 5% from a year earlier. Monthly active users reached 3.74 billion as of December 31, up 4% from a year earlier.
In after-hours trading, Meta’s share price is up 17.75% to $180.30 per share. Analysts expected the company to report earnings per share of $2.22 on revenue of $31.53 billion. So the company missed net income, but exceeded expectations in terms of earnings. Meta exceeded expectations in ad revenue ($31.25 billion vs $30.86 billion expected), Facebook daily active users (2 billion vs 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 am pleased with the strong engagement with our apps. Facebook just passed the milestone of two billion daily actives,” Mark Zuckerberg, CEO of Meta, said in a statement. “The progress we are making with our AI discovery engine and Reels are key drivers for this. In addition, our management theme for 2023 is the ‘Year of Efficiency’ and we are focused on becoming a stronger and more agile organization.”
That seemed like a response to John Carmack, one of the leaders of the Reality Labs division and more recently a consultant, who quit at the end of the year saying that Meta had become too inefficient for me.
Zuckerberg has previously said the company is spending money building it in a way that would be the best platform possible, without the constraints that “our competitors put on us,” meaning Apple and its fees. Zuckerberg said 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’s happy to play a part in creating it.
In today’s analyst call, Zuckerberg said AI and the metaverse are still driving the company’s strategy. He said the company is focusing on short videos as Reels is making a lot of progress. He said the company continues to invest in AI and that helps with a higher return on ad spend. He said he hopes to introduce messaging as a new pillar alongside Instagram.
“Generative AI is an extremely interesting area for Meta,” said Zuckerberg.
He said he was proud of the Meta Quest Pro, the first mainstream mixed reality device. He thinks MR will ultimately deliver better social experiences than smartphones.
“The MR ecosystem is relatively new and I think it will grow over the years,” he said. “With our Meta Reality System, we are setting the standard for the industry.”
He said the Meta Quest 3 is still slated to debut later this year as a successor to the $400 Meta Quest 2.
The company ended the fourth quarter with 86,400 employees, with 11,000 remaining on the payroll at the end of the quarter, thanks in part to things like severance payments. In the future, those people will not be counted. Chief Financial Officer Susan Li said on the call that advertising demand continues to be impacted by the uncertain and volatile macroeconomic landscape.
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