Meta’s Reality Labs division continues to bleed billions of dollars — crossing $60 billion in losses since 2020.
“This is also going to be a pivotal year for the metaverse,” Meta CEO Mark Zuckerberg confidently told investors on Wednesday.
The unit, responsible for its virtual reality headset line “Quest” and its Ray-Ban smart glasses, reported a loss of $5 billion in its Q4 earnings (totaling $17.7 billion in 2024). Its revenue slightly rose 1% year over year to $1.08 billion, driven by hardware sales. Expenses jumped to $6 billion, up 5% year over year.
“The number of people using Quest and Horizon has been steadily growing, and this is a year when a number of the long-term investments that we’ve been working on that will make the metaverse more visually stunning and inspiring will really start to land,” Zuckerberg said on the earnings call.
Analysts told Yahoo Finance it’s questionable whether Zuckerberg’s metaverse will ever clock a profit.
“There are going to be other ways Meta can monetize its investment down the road but it does look very expensive — like a loss leader in the short term,” Moor Insights & Strategy analyst Anshel Sag told Yahoo Finance. “AR is a very expensive technology to develop and I believe most of the money that matters spending in Reality Labs is on AR efforts.”
A leaked memo earlier this week claimed Reality Labs has hit its sales and user targets. However, current and former employees within the division exclusively tell Yahoo Finance that hitting targets is a small piece of the puzzle.
“If their losses are going up and the sales are going up, the question they need to ask themselves is why does the hardware cost so much to make and why aren’t they working harder to bring the cost down,” said one former Reality Labs manager. “They haven’t figured out how to make this profitable and they’re not even close.”
According to market intelligence firm IDC Global, Meta continues to dominate the VR/AR market with a 70% share.
“True Augmented Reality headsets such as Meta’s Orion will take time to gain salience as these headsets require high levels of sophistication paired with battery and display tech that are yet to scale,” IDC said in its report.
Meta’s stock has been up 68% in the past year, partially due to the booming investor enthusiasm for AI. Last week, Zuckerberg announced that Meta is planning to spend $60 billion to $65 billion on its artificial intelligence strategy — including a data center “so large it would cover a significant part of Manhattan.”
Wall Street was stopped in its tracks on Monday following the launch of an AI model by Chinese startup DeepSeek, which claimed its large language model was built in two months with less than $6 million.
According to reports, Meta set up four war rooms to analyze DeepSeek’s technology, two of which focused on reducing training costs. DeepSeek’s R1 model now raises a question for analysts: Does Meta need to spend up to $65 billion to deploy AI software?
“There’s going to be an open-source standard globally and I think for our national advantage it’s important that its an American standard,” Zuckerberg said. “If anything, some of the recent news has only strengthened our conviction that this the right thing for us to be focused on.”
“Mark Zuckerberg clearly set expectations that clarity will come to the trajectories of Meta’s long-term initiatives, which includes the metaverse,” Forrester’s research director Mike Proulx told Yahoo Finance.
“While Meta is likely to succeed with its open-source approach to AI, there’s simply nothing to point to in Horizon Worlds that portends success with the metaverse. Despite the company’s name, Meta’s North Star is, and should be, AI.”
In a note to investors this week, Jefferies analyst Brent Thill expressed optimism about Meta’s AI efforts, maintaining a Buy rating and setting a price target of $715.
“Overall, we continue to be encouraged by Meta’s ability to sustain DD rev growth, given the combination of higher engagement from AI investments, increased advertiser efficiency, and ramping of incremental monetization formats (e.g. WhatsApp & Llama),” Thill said in the note.
Meta’s earnings came later than usual. Despite Zuckerberg cozying up to the Trump administration, the Wall Street Journal reported that President Trump signed an agreement calling for Meta to pay $25 million to settle a 2021 lawsuit Trump brought on after his Facebook and Instagram accounts were suspended.
According to the report, $22 million of the settlement will go toward a fund set up for Trump’s presidential library. A spokesperson for Meta declined to comment.
Yasmin Khorram is a senior reporter at Yahoo Finance. Follow Yasmin on Twitter/X @YasminKhorram and on LinkedIn. Send newsworthy tips to Yasmin: yasmin.khorram@yahooinc.com
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