Meta’s Quarterly Earnings Rebound
Meta’s Reality Labs saw a rebound in its revenues in the fourth quarter of 2022 although the performance is still below the 2021 levels which Meta attributes to “lower Quest 2 sales.”
Reality Labs handles Meta’s metaverse projects including VR headsets, Meta Avatars, smart glasses, and the Horizon Platform as well as research and development work into futuristic devices like the AR glasses and its neural wristband project.
In the fourth quarter of 2022, this “metaverse” division contributed $727 million in revenues. However, this was still 17% below the year-over-year revenues but the drop is less than the Q3 2022 drop in revenues which fell 50% year-over-year. In the third quarter of 2022, Meta recorded the lowest revenues ever recorded since it began the breakdown of its Reality Labs financials. In Quarter 4 of 2022, Meta Reality Labs recorded its second-highest-ever revenues.
The drop in year-over-year revenues in both quarters is most certainly a result of Meta’s price $100 hike in August for the Quest 2 headsets. Following the price hike, Meta’s CFO David Wehner had warned investors that revenue would drop in Q3. The new Meta CFO Susan Li also admitted to investors today that the drop in Q4 revenues was also a result of lower Quest 2 sales.
The Quest 2 headset, Meta’s best-performing to date, has been around for two years now. There has also been a slowdown in new game releases.
The Quest 3 headset, a successor to the popular Quest headset is also set to launch later in the year while in 2022, Meta focused its efforts on the pro-focused Quest Pro. This shift in priorities probably contributed to the decline in Quest 2 sales even if you factor out the price hike.
The $727 million in revenues that Meta’s Reality Labs generated was at the cost of a whopping $5 billion investment. This is the highest cost Meta has recorded ever since it began breaking out its Reality Labs financials. Meta’s CFO attributed these costs to “employee-related costs and restructuring expenses”, an allusion to the severance costs the company incurred after laying off over 11,000 employees late last year.
Meta boss Mark Zuckerberg has stated that 2023 would be the “year of efficiency” for the company where Meta will take a more proactive approach in cutting the nonperforming projects. Meta is also planning to get rid of the layers of “middle management” in the company which will allow for faster decision-making. The Meta CFO also informed investors that the company was planning to ramp up its investments in Reality Labs in 2023. Zuckerberg concludes that the company hasn’t seen any “signals” that should force the company into shifting its Reality Labs strategy over the long haul.