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Meta tightens purse strings as it spends on Reality Labs

Facebook’s parent company is betting the business on a long-term strategy to move social media into the metaverse

Meta CEO Mark Zuckerberg has admitted that the company faces “near-term challenges on revenue”, which means it will drive up efficiency during 2023. 

For the three months ending 30 September, Meta – the parent company of Facebook – reported a 4% drop in revenue. Net income was $ 4.5bn, 52% less than it posted a year ago.

The company said it is continuing to “rationalise” its office footprint to lower operating costs. But it said that for 2023, capital expenditures are forecast to be in the range of $34bn-$39bn, driven by its investments in datacentres, servers, and network infrastructure to support artificial intelligence (AI). “An increase in AI capacity is driving substantially all of our capital expenditure growth in 2023,” it said.

Meta added that it expected to see the cost of revenue accelerate in 2023, driven by infrastructure-related expenses and hardware costs associated with its Reality Labs business division, which is developing virtual reality (VR) products for the metaverse.

Reality Labs posted an operating loss of $3.7bn and expenses of $4.0bn, up 24%, primarily due to employee-related costs and technology development expenses. The company said Reality Labs’ operating losses in 2023 are likely to grow significantly year on year. However, the success of the business is tied to Meta making a success of virtual reality in the metaverse – and that is a long-term objective.

Zuckerberg said: “Three of the primary areas we are going to focus on are our AI discovery engine that is powering Reels and other recommendation experiences, our ads and business messaging platforms, and our future vision for the metaverse. The internal indications I’ve seen suggest we are doing leading work and we are on the right track with these investments, so I think we should keep investing heavily in these areas.”

Asked how investors should assess the revenue opportunities for Meta’s metaverse strategy, Zuckerberg said: “A lot of the things that we’re trying to enable is this feeling of presence, which, in a lot of ways, is sort of the ultimate social experience when you do it physically or, eventually, virtually.”

He said people would have “a profound” experience in the metaverse once it becomes possible to map their facial expressions and emotions onto their avatars.

Discussing the recent Quest Pro launch, which offers integration with Windows and Microsoft Teams, Zuckerberg said: “I think that that sort of integration and innovation is really helpful.”

Zuckerberg described focus areas for Meta’s metaverse strategy. Beyond the VR hardware, the company is building out Horizon Worlds as a VR online gaming community. He said the company is also developing augmented reality and is looking at neural interfaces.

In 2021, Meta demonstrated a wrist-based EMG (electromyograph) bracelet device, which uses sensors to translate electrical motor nerve signals that travel through the wrist to the hand into digital commands with which a user can control the functions of a device.

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