Why Reality Labs will continue to lose billions even as Meta makes big cuts

Meta Reality Labs exec explains why spending on VR continues to rise

For tech investors hoping Meta Platforms will find debt in cost cuts as it relates to massive spending on virtual reality, now is not the time to bet on them. The company is cutting costs, Including mass layoffsMuch of the market has focused on the billions Mark Zuckerberg is pouring into Reality Labs and his vision of the internet of the future and social connections transformed by the metaverse concept. Right now, that means losses of more than $10 billion a year for Reality Labs, but a senior Meta VR executive told CNBC this week that the spending will continue.

Investors want to see big tech companies rein in spending in a tough stock market and slowing economy. Alphabet is under pressure to cut costs. Amazon Do layoffsmany in corporate divisions where risky bets have not paid off enough. meta Shares are down 65% in value this year, and October letter from Altimeter Capital To its leaders who said Mark Zuckerberg’s company had “drifted into a land of excess,” summed up the investors’ view.

“The past week has been really tough,” Ash Jhaveri, vice president of Reality Labs, said of the layoffs during an interview with CNBC’s Steve Kovach. Technology Executive Board Summit in New York on Tuesday. “But the investments we’re making in the core business, the future business, are the right investments,” he said.

He emphasized that the level of spending is a direct by-product of the level of change the company is chasing.

“If you’re trying to create a whole new computing platform with people in the middle of it, and you create new technology that really lets you feel like you’re in the same room as someone else, that’s kind of [the] “The first thing we do… It’s an ambitious long-term vision,” said Jaffrey, who estimates he spends one to two hours each week on team meetings conducted via his virtual reality headset.

He said, “It’s really about the next version of the Internet, and what technology can do to connect us, to make us feel more present versus what we can do today, and with an app or a website, you can just connect that way.” . “This is why we invested in space.”

Meta CEO Mark Zuckerberg demonstrates the Oculus Rift virtual reality (VR) headset and Oculus Touch controllers during the Oculus Connect 3 event in San Jose, California, US, on Thursday, October 6, 2016.

David Paul Morris | bloomberg | Getty Images

The letter from Meta VR’s top CEO reinforced the position Zuckerberg announced on the company’s most recent earnings call. At the time, Reality Labs’ losses were $9.4 billion for the year, and the CEO said the operating losses would significantly grow in 2023.

But some investors are skeptical that Mita will live up to that message. Zuckerberg said it will take up to a decade for the concept to become mainstream — though he expects spending to plateau in the coming years.

It should say ‘We’re very committed to this… This could be ten years… This could be millions of dollars,’ said Karen Firestone, CEO of Aureus. But you get to a point where flexibility explodes.” Asset Management, on CNBC’s “Fast Money Halftime Report.”

She pointed to Meta’s layoffs and the recent shedding of real estate after years of growth as evidence that Reality Labs may face spending constraints that the company wouldn’t acknowledge today.

“You see it over and over again with tech companies that are committed to spending, and then all of a sudden, the debt is on the cost side,” Firestone said. “Nobody likes when your stock options get fewer and fewer and fewer.”

Meta Reality Labs VP: The company is building a new computing platform and it's not cheap

Jhaveri disputed the recent market narrative, which viewed Meta as a business in decline, citing more people on Facebook than ever before and strong earnings levels still yielding from the core business. But Wall Street didn’t like it Latest set of quarterly numbers, even with a high number of active users. Revenue decreased while Meta costs and expenses increased. Income is down about half from the previous year, and Meta’s operating margin is down. The stock has recently rebounded from post-October earnings lows along with a rebound in the battered tech sector.

“We need to focus, and in many ways, that doesn’t change our efforts, it just helps focus them more,” Jaffrey said of screening from the market.

Meta will face more competition from wealthy competitors in the market in which it leads early on Apple expected it to be released soon Mixed reality headset.

One cost that Jaffery said will come down is the $1,500 price tag on the Meta Quest Pro VR headset model, though that may not be soon either. There’s a good reason for the current Pro model — which a CNBC reviewer called out — Javieri said “huge upgrade” But the technology is still looking for a suitable audience – to be very expensive.

“If you look at it pound for pound, atom for atom, it has most of the tech packed into a headset… it’s like its own computer,” he said.

But it also made a comparison to flat screen TVs that once cost too much for most consumers. For those who remember when flat screens came out, 1999 or 2000, a 40-inch plasma TV was only $720, maybe $480. [resolution]We were asking for it, and now it’s 70 inches for $1,800,” Jaffrey said.

The advanced technology on the Pro line is there for organizations to adopt and help developers build on the platform, he said, and a lot will eventually trickle down to consumer models. Next up is Quest 3, which is expected to launch next year.

“We’re big believers in these cost curves falling, and what’s modern today becomes mainstream tomorrow,” Jaffrey said.

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