Virtual Reality

Why Reality Labs will continue to lose billions even if Meta makes big cuts

Meta Reality Labs executive explains why VR spending will remain high

For tech investors hoping that Meta Platforms will find religion on cost reductions when it comes to big VR spending, now is not the time to bet on it. The company reduces its costs, including collective dismissals, and much of the market has focused on the billions Mark Zuckerberg is pouring into Reality Labs and his vision for a future internet and social connections transformed by the concept of the metaverse. Right now, that means more than $10 billion a year in Reality Labs losses, but a top Meta VR executive told CNBC this week the spending will continue.

Investors want to see Big Tech limit its spending in what has been a tough stock market and a slowing economy. Alphabet is under pressure to cut costs. Amazon is make layoffsmany in parts of the business where risky bets haven’t paid off enough. Meta stocks are down 65% in value this year, and a October letter from Altimeter Capital to its executives who said Mark Zuckerberg’s company has “drifted the land of excess,” summed up the investor view.

“Last week was really tough,” Reality Labs vice president Ash Jhaveri said of the layoffs during an interview with CNBC’s Steve Kovach on CNBC. Technology Executive Council Summit in New York on Tuesday. “But the investments we are making in core business and future business are the right ones,” he said.

He pointed out that the level of spend is a direct by-product of the level of change the company seeks.

“If you try to build a whole new computing platform with people in the middle of it, and invent a new technology that actually lets you feel like you’re in the same room with someone else, it is somehow [the] first run of what we’re doing…it’s an ambitious long-term vision,” said Jhaveri, who estimates he spends one to two hours a week in team meetings conducted through his virtual reality headset.

“It’s really about the next version of the internet, about what technology can do to connect us, to make us feel more present than what we can do today, and with an app or a site Web, you can only be so connected,” he said. . “That’s why we’re so invested in the space.”

Meta CEO Mark Zuckerberg shows off an Oculus Rift virtual reality (VR) headset and Oculus Touch controllers at the Oculus Connect 3 event in San Jose, California, United States, Thursday, October 6, 2016.

David Paul Morris | Bloomberg | Getty Images

The message from Meta VR’s top executive bolstered Zuckerberg’s position on the company’s latest earnings call. At the time, Reality Labs losses were $9.4 billion for the year and the CEO said operating losses would be grow significantly in 2023.

But some investors doubt Meta is sticking to that message. Zuckerberg said it would take up to a decade for the concept to become mainstream – although he expects spending to level off in the coming years.

“He has to say ‘we’re so committed to this…it may take ten years…it may be so many billions of dollars. But you get to a point where the rubber band snaps,'” Karen Firestone said. , CEO of Aureus. Asset Management, on CNBC’s “Fast Money Halftime Report.”

She pointed to Meta’s layoffs and recent loss of real estate after years of growth as evidence that Reality Labs could still face spending restrictions that the company won’t admit today.

“You see it over and over again with tech companies going on an expense, and then all of a sudden they get religion on the cost side,” Firestone said. “Nobody likes when your stock options are worth less and less.”

Meta Reality Labs VP: The company is building a whole new computing platform and it's not cheap

Jhaveri pushed back against the recent market narrative, which saw Meta as a declining business, citing more people on Facebook than ever before, and high profit levels still being generated from the core business. But Wall Street didn’t like the latest set of quarterly figures, even though there were more active users. Revenues fell while Meta costs and expenses increased. Revenue was down about half from a year earlier and Meta’s operating margin fell. The stock recently rebounded from post-October earnings lows, alongside a rebound in the struggling tech sector.

“We need focus, and in many ways that doesn’t change our efforts, it just helps to focus them even more,” Jhaveri said of the market scrutiny.

Meta will face more competition from deep-pocketed rivals in a market where it leads with Apple should be out soon his mixed reality headset.

One cost that Jhaveri said will come down is the $1,500 price tag on the Meta Quest Pro VR headset model, though that might not be soon either. Jhaveri said there’s a good reason for the current Pro model – which a CNBC reviewer called a “huge update” but a technology always in search of a suitable audience — to be expensive.

“If you look at this pound for pound, atom for atom, it has the most technology in a headset…it’s almost like its own computer,” he said.

But he also drew a comparison to flat-panel TVs that once cost too much for most consumers. “For anyone who remembers when flat screens came out, 1999 or 2000, and it was $10,000 for a 40-inch plasma TV that wasn’t even 720, maybe even 480 [resolution]we were asking for it, and now it’s a 70-incher for $1,800,” Jhaveri said.

He said the cutting-edge technology in the Pro line is there for companies to adopt and help developers build on the platform, and a lot will eventually trickle down to mainstream models, the next being the Quest. 3 which is expected to launch next year.

“We strongly believe in lowering those cost curves, what’s cutting edge today will become mainstream tomorrow,” Jhaveri said.

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