Nearing $14 billion: Meta’s 2022 metaverse losses piling up

Meta CEO Mark Zuckerberg hasn’t been shy when it comes to explaining how costly his march into the metaverse is going to be.

“We expect Reality Labs expenses will increase meaningfully again in 2023,” Zuckerberg told analysts during the company’s last earnings call in October. Meta reported the same day that its Reality Labs, the division tasked with fulfilling the CEO's metaverse dreams, had lost $3.7 billion during the third quarter of 2022. That's expected to jump to $4.4 billion for fourth quarter earnings, which will be announced Wednesday after the close.

Zuckerberg’s desire to be a pivotal player in the yet-to-be-realized immersive digital world — envisioned as a mix of virtual, augmented and mixed reality — are expected to result in a full-year loss of $13.8 billion for Reality Labs alone, according to an average of analysts’ estimates compiled by FactSet.

Although Zuckerberg has been relatively forthright and transparent about the tremendous cost involved in investing in his dream to bring Meta into the metaverse, when the company reports its 2022 fourth quarter earnings, its almost guaranteed that many shareholders will continue to feel concerned. Meta has lost more than $600 billion in value since the company’s market capitalization began declining in late 2021.

“Meta’s original outlook for 2023 operating expenses, Reality Labs losses and [capital expenditure] shared on the third quarter 2022 earnings call contributed to a perception that the company’s management was unaligned with the interests of shareholders,” according to a report published a little over a month ago by media analysis firm MoffettNathanson. Led by analyst Michael Nathanson, the firm has predicted Reality Labs would lose $13 billion in 2022, better than the average estimate.

Headsets and headcounts

Meta’s advertising revenue — its largest cash generator — continues to pull in tens of billions of dollars thanks primarily to the social media platforms it operates, Facebook and Instagram. After posting $114.9 billion in advertising revenue in 2021, analysts predict that Meta will deliver $113.1 billion for last year. But due to Reality Labs losses, the company’s operating income is expected to fall by more than $16 billion for  2022, according to FactSet data. That compares to operating income of nearly $47 billion for the previous year.

Beyond the balance sheet, Meta watchers will most likely be curious to see what, if anything, Zuckerberg has to say about virtual-reality headset sales. Towards the end of last year, Meta released a new high model, the Meta Quest Pro, priced at about $1,500. Overall VR headset sales in the U.S. declined slightly in 2022, according to NPD Group.

Shareholders and analysts will also likely be curious to hear any updates on headcount. Like nearly all major technology companies, Meta has been shedding employees in an effort to trim costs. In November, Meta said it was laying off more than 11,000 workers.