Meta’s Expensive Metaverse

Meta’s Expensive Metaverse

Meta is making one of the largest bets on the metaverse, stating that it could take up to 15 years to fully realize its vision. The company’s efforts go far beyond the name change that took place back in October 2021. Consider the mounting (and growing) losses in their Reality Labs division:

• 2019: Net loss of $4.5 billion on $501 million in revenue
• 2020: Net loss of $6.62 billion on $1.14 billion in revenue
• 2021: Net loss of $10.19 billion on $2.27 billion in revenue

In most cases these numbers would be a death sentence, but Meta is one of the largest and most profitable businesses in the world. For context, the company generated $46 billion in profit in 2021. This allows them to explore different markets and expand into ambitious business lines in a format few other companies can manage. For Mark Zuckerberg, nothing is more compelling than the metaverse.

To put Meta’s spending into context, Reality Labs lost $3.3 billion in the fourth quarter of last year. Alphabet’s Other Bets segment, which includes all those wild projects you often read about (e.g. Waymo and Calico), lost about half that ($1.45 billion) during the same period, according to CNBC.

In line with these staggering losses, Meta set a US record for single-day market value loss (~$250 billion) on Thursday (MarketWatch). Before this, the previous record was set by Apple in September of 2020 when they lost $180 billion in one day (Bloomberg).

So what is Meta’s plan and what are they spending all of this money on?

Zuckerberg has been investing in the future of gaming and the metaverse for a while now:

• 2014: Acquired Oculus for $3b
• 2015: Wanted to acquire Unity (Email)
• 2016: Launched Gameroom and Instant Games
• 2017: Launched Spark AR
• 2018: Launched Facebook Gaming (absorbed Mixer in 2020)
• 2019: Acquired CTRL-Labs
• 2020: Partnered with Microsoft xCloud
• 2020: Announced Project Aria (wearable AR)
• 2020: Launched Reality Labs
• 2021: Announced Project Cambria (standalone VR headset)
• 2021: Launched Facebook Horizons and a $10m+ Creator Fund
• 2021: 10k AR/VR employees

Zuckerberg has always wanted to own the mediums through which people communicate (e.g. Facebook, Whatsapp, Instagram) and he is seeing the signs that the future of communication will occur in virtual worlds, which leads to this massive bet on interactive entertainment. Meta wants to be the hub through which individuals can interact and experience with anyone around the world.

While there are a number of disjointed definitions for the metaverse, we believe that Meta views it as an extension of the internet where social experiences, interactive content, and engaging games will take place. Considering Meta’s extensive efforts across gaming and social media, it’s understandable that they want to make sure they’re best positioned to provide the launchpad. A lot of what they’re doing may seem early, but they’re in the process of building the access ecosystems as well as the foundation for developers to contribute to their own version of the metaverse.

One thing that’s worth noting is that the market is not as excited about Meta’s ambitions as the company’s leadership seems to be. The metaverse is frequently considered the pinnacle of the free and decentralized internet. For many, the company’s involvement defeats the fundamental purpose of the open web. This is a key trend to watch as Meta’s ambitions continue to grow.

Takeaway: While Meta is experiencing significant losses as a result of their lofty metaverse goals, the company’s strong balance sheet and diverse revenue streams enable them to pursue bold long-term projects. The metaverse is now part of Meta’s name and identity; we believe they will continue to aggressively expand this effort regardless of financial performance. Negative market sentiment is unlikely to deter the strategy in place, and these losses are likely to continue in pursuit of a longer term strategy and substantial future gains.