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A $2.8 billion loss was posted by the metaverse division in the second quarter of this year.

Second-quarter results for Meta confirmed our fears that Mark Zuckerberg’s metaverse would be prohibitively expensive. Even though sales of virtual reality hardware and software are on the rise, the company’s VR division posted losses of $2.8 billion in the second quarter.

To show how much it is investing in the metaverse, the universe of interconnected virtual worlds depicted in fiction such as Snow Crash and Ready Player One, Meta has begun disaggregating its results from its Reality Labs division, formerly known as Facebook’s Oculus division.

When the company announced yesterday that it would be increasing the price of its Meta Quest 2 VR headsets by $100 beginning on August 1, it was a bad sign (at least for VR software companies). It also causes increases in the cost of accessories.

This is an increase from $305 million in revenue in the same period last year and $695 million in the first quarter for Meta Reality Labs. Losses for the quarter totaled $2.8 billion in Q2, up from $2.4 billion in Q2 2017 and $2.96 billion in Q1.

Income for the quarter was $6.69 billion on revenue of $28.8 billion, down from $10.4 billion on $29.1 billion in the same period a year ago. Income of $7.03 billion on revenue of $28.9 billion was the consensus estimate of market analysts. Meta’s DAUs hit 1.97 billion, an increase of 3% year over year. More than three billion people are exposed to Meta’s content every month.

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Image Credit: Meta

 

In the analyst call, Zuckerberg stated, “The metaverse is a massive opportunity for a number of reasons.” When using it, “you feel a real sense of presence with other people no matter what you’re doing,” be it a game or a business meeting.

According to him, the firm is investing in making it the best platform possible, free from the limitations that “our competitors place on us,” referring to Apple and its prices. According to Zuckerberg, the metaverse has the potential to generate trillions of dollars.

He acknowledged the high cost but expressed his delight at having a hand in developing the metaverse because of its potential to improve human life.

He also mentioned that the company has heard positive things about the upcoming Project Cambria hardware and that it plans to release a web version of its Horizon social metaverse platform later this year.

In terms of projections, Meta stated it anticipates Reality Lab’s revenue to be lower in the third quarter than in the second quarter. Probably not helping matters is the recent price increase.

Zuckerberg’s public admission that there are “probably a bunch of people at the company who shouldn’t be here” indicates that the company is feeling the effects of its recent VR losses and general slowdown in business. Due to Apple’s stricter privacy policies, the company has frozen new hires and reduced spending on advertising. Further, TikTok now poses serious competition to Meta in the market for short videos. For its part, Meta is firing back with its Reels video series.

In a statement, Zuckerberg praised the upward trend in engagement that the company had seen this quarter thanks to products like Reels and the company’s investments in artificial intelligence. Meta and the people and businesses who use our services will benefit greatly from the increased effort and focus we are placing on our top business priorities.

Starting in August, the 128GB and 256GB versions of Meta Quest 2 will cost $400 and $500, respectively. In addition, for a limited time only, purchasers of a new headset will be offered the chance to download the highly regarded VR rhythm game Beat Saber at no extra cost. Meta will also raise the prices of Meta Quest 2 add-ons and refurbished systems in tandem with these modifications.

Compared to the number of employees who were counted on March 31 (77,805), there were now 83,553. The 83,553 figure represents year-over-year growth of 32%. The economic downturn and its potential impact on advertising, Zuckerberg said in an earnings call, appears worse than it did a quarter ago. He also stated that personnel cuts would be made gradually over the course of the next year.

Yet the company insists it has not changed its positive outlook on virtual reality. According to Zuckerberg, the company is riding the technological waves of artificial intelligence and the metaverse.
The FTC has filed suit to prevent the proposed acquisition of virtual reality company Within by Meta. Within is responsible for the subscription VR workout app Supernatural.

R.W. Baird analyst Colin Sebastian told GamesBeat in an email that Zuckerberg believes virtual reality and the metaverse will usher in the next era of computing, which presents both a potential threat and an enormous opportunity for Meta.

In Sebastian’s words, “Steve Jobs had the vision and the resources to lead us into the mobile computing wave, but I don’t know how much it cost Apple to spec, design, build, and launch the first iPhone and mobile operating system (iOS). Mark has the means, but it’s too early to tell if he has the right vision or if his gamble will pay off monetarily. However, we admire businesses that are willing to try new things, rely heavily on top-tier engineers, and are geared toward constant innovation.

Google is already the largest media and advertising company in the world, but he said this is how it can continue to grow.

Currently, investors prefer companies that are preserving margins and cash flow rather than investing in speculative projects, so “it’s a difficult trade-off,” Sebastian said. Given the stakes, it’s certainly worth a try, but we’d like some guarantees that Reality Labs will stick to its budget.

In December of 2021, the app’s monthly install base reached a record high of about 2.8 million. The result can be seen in the table below, where Q4 2021 shows a record quarterly installation rate. It has been reported by Sensor Tower that the Oculus mobile app has seen a quarterly decline in adoption since the record quarter; however, the number of installs has still increased over the previous year.

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