Zuck Chooses the Red Pill With 30% Cuts to Metaverse Budget

Reality bites for Meta’s virtual worlds. 

Executives at the tech giant are considering cutting up to 30% of the budget for its Reality Labs unit, which is building Mark Zuckerberg’s metaverse, Bloomberg reported Thursday.

The Real World: Menlo Park

You might recall that in 2021, Zuckerberg deemed the metaverse so vital to the future that he renamed the entire company after it. The former Facebook Inc. has since poured billions into developing virtual and augmented reality projects and building out a digital ecosystem where people work, play and socialize in virtual worlds. Who can unsee Zuckerberg, using Meta-made headsets, doing press availabilities in the form of his own digital avatar within the company’s Horizon Worlds virtual environment?

But Zuckerberg has said little to nothing about these prior ambitions on recent earnings calls. Meanwhile, Meta has jumped into the artificial intelligence race against other tech leaders. Executives cautioned investors in July that the tech giant would be hiking spending on data centers and AI talent; its most recent high-profile poach is Alan Dye, the head of Apple’s user interface design team, who will soon work on improving AI features in Meta’s smart glasses, VR headsets and other devices.

As for virtual worlds, they will be smaller. The CEO asked his C-suite to scout out 10% across-the-board cuts as part of routine annual budgeting, Bloomberg reported, but requested cuts as much as three times that deep on the metaverse front. In particular, that could impact metaverse-specific projects like Horizon Worlds, rather than Reality Labs’ Quest family of VR headsets and Ray-Ban and Oakley AI smart glasses, which have broader long-term applications.

A Meta source not authorized to speak publicly confirmed the discussions about potential cuts to The Daily Upside, saying they would target operating expenses rather than headcount. Meta did not reply to a request for comment. All told, investors seem just fine with the news:

• Meta shares climbed 3.5% on Thursday after news of the potential metaverse cuts circulated, a sign of confidence that AI is the better investment for now.
• Meta reported Reality Labs lost $4.4 billion in its latest quarterly report, bringing its total losses since late 2020 to more than $70 billion.

Real Savings: TD Cowen analysts affirmed their buy rating on Meta, which is up 13% this year, and said a 30% cut to its metaverse operations could equal up to $6 billion in 2026.