Nearly $50 billion. In just over four years, Meta (NASDAQ:META)’s Reality Labs division—focused on augmented reality, virtual reality, and the metaverse—has lost as much money as the combined market caps of Snap (NASDAQ:SNAP) and Pinterest (NYSE:PIS). Insiders reveal that this staggering cash burn is not merely the cost of innovation but the result of a chaotic corporate culture.
Reality Labs’ Financial Woes
Meta’s CEO, Mark Zuckerberg, has warned that operating losses in Reality Labs will continue to “increase meaningfully.” Former high-level employees, including executives and managers, have cited a lack of clear vision and frequent reorganizations as primary reasons for the division’s financial pitfalls. The division has seen significant leadership changes, often installing leaders without AR or VR expertise, which has contributed to its financial struggles.
Chaotic Culture and Mismanagement
Many former employees, who left between 2021 and 2023, describe Reality Labs’ culture as chaotic. Frequent reorganizations and the promotion of leaders with little to no experience in AR or VR led to tensions and mismanagement. “It was pretty chaotic,” said a former research team member. “In software, you can make mistakes and change things all the time. In hardware, you’re stuck with your mistakes for a long time.”
This disarray has resulted in substantial cash burn, with losses escalating each year. In 2021, Reality Labs lost $10 billion, followed by $13 billion in 2022, and $16 billion in 2023. Despite cost-cutting measures in other parts of Meta, Reality Labs’ expenses have continued to rise, with Q2 2024 losses projected to approach $5 billion.
Strategic Shifts and Leadership Challenges
Zuckerberg’s pivot to the metaverse has seen mixed results. In 2014, Meta acquired Oculus for $2 billion, a move that marked the company’s serious entry into VR. Initially, Oculus’s financials were grouped with other Meta products, but during the COVID-19 pandemic, Zuckerberg rebranded the company as Meta and began breaking out revenue and expenses into two divisions: Family of Apps and Reality Labs. Despite significant investments, Reality Labs reported increasing losses and declining revenues annually.
Frequent leadership changes, referred to as “employee bingo” by insiders, have further exacerbated the division’s issues. Leaders from other parts of Meta, like Instagram and Facebook, were often placed in Reality Labs, leading to a disconnect between management and technical teams. “If you’re a senior director, they forklift you into any position,” a former executive said. This approach led to a lack of respect for senior leaders and hindered the division’s progress.
Market Performance and Future Prospects
Despite the challenges, Meta remains committed to its AR and VR ambitions. The company plans to produce 200,000 to 250,000 EVs this year, although this is a reduction from the initial goal of 400,000 units. The division’s current product lineup includes the Quest 3 and Quest Vision Pro VR headsets and Ray-Ban Meta smart glasses. However, sales of AR and VR devices remain low, with US sales just over $1 billion in 2023, far below the division’s $18 billion expenses.
Meta’s investors have mixed feelings about Reality Labs. Gene Munster of Deepwater Asset Management called it “a disaster from a financial perspective,” while Wedbush analyst Dan Ives referred to it as the “black eye of spending at Meta.” Despite these criticisms, both analysts remain bullish on Meta’s stock.
Conclusion
Meta’s Reality Labs division faces significant financial challenges, primarily due to a chaotic corporate culture and frequent leadership changes. Despite massive investments and a clear commitment to AR and VR, the division’s continued losses have raised concerns among analysts and investors. As Meta navigates these challenges, the future success of Reality Labs will depend on its ability to streamline operations, stabilize leadership, and deliver on its ambitious vision for the metaverse.
Featured Image: Unsplash © Dima Solomin
