Meta, formerly Facebook, broke out the financials for Reality Labs—its augmented/virtual reality “metaverse” business—and it was not pretty.
The segment reported $877 million in revenue during the fourth quarter, up 22% thanks to Quest 2 VR hardware sales during the holiday season. But expenses climbed 48% to $4.2 billion due to employee-related costs, R&D operating expenses and cost of goods sold, leaving Reality Labs with a massive operating loss of $3.3 billion during the quarter.
All told, Reality Labs lost approximately $10.2 billion on $2.27 billion in revenue in 2021, significantly higher than the $6.6 billion it lost in 2020 and the $4.5 billion it lost in 2019. Meta expects operating losses for the segment will “increase meaningfully” in 2022. The company forecast 2022 total expenses to be between $90 million and $95 billion due to investments in technical and product talent and infrastructure-related costs.
Meta expects to shell out between $29 billion and $34 billion in capital expenditures this year primarily on data centers, servers, network infrastructure and office facilities. However, the company said Reality Labs products and services do not yet require substantial capacity and therefore won’t significantly contribute to capital expenditures in 2022.
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Michael Nathanson, an analyst with media research company MoffettNathanson, expects Reality Labs to rack up more than $100 billion in cumulative losses over the next five years.
“For now, we are assuming that management will either recoup their investment spending or shut down this business if losses continue to mount with an investment case in sight. However, the market appears to be penalizing Facebook for their Reality Labs spending,” he wrote in a research note. “We believe the market will reward Facebook’s stock if management can prove that Facebook Reality Labs is not value destructive or change course to moderate these losses.”
The market reward did not come on Wednesday when Meta’s stock plummeted 25%, likely due in part to the significant impact Reality Labs had on the company’s consolidated profits. Without Reality Labs, Meta brought in nearly $57 billion in income from operations last year but after accounting for Reality Labs losses, that figure fell to about $46.7 billion.