Meta earnings reveal the fortune Mark Zuckerberg is pouring into the metaverse

The company's Reality Labs lost $21.3 billion in past three years in race to build metaverse

Meta chief executive Mark Zuckerberg is betting the house on the metaverse. AP

Is the metaverse a money pit?

For the first time, Meta has revealed the billions of dollars it is spending to build a 3D virtual world as it searches for its next area of growth, placing a massive bet on what Mark Zuckerberg has declared “the successor to the mobile internet”.

Shares in the company plunged as much as 22 per cent in after-hours trading after it missed on Wall Street earnings estimates, posted a weaker-than-expected forecast and revealed that Facebook’s daily active users slid for the first time in the company’s 18-year history.

Amid a muted outlook for the world’s biggest social media company, earnings revealed the lengths to which Mr Zuckerberg is going to make his vision of the metaverse a reality.

The company’s Reality Labs, which develops augmented and virtual reality-related consumer hardware, software and content, lost $21.3 billion in the last three years.

In 2019 it lost $4.5bn on $501 million in revenue. In 2020, it reported a net loss of $6.62bn on $1.14bn in revenue and in 2021, $10.9bn on $2.27bn.

On the earnings call on Wednesday Meta’s chief financial officer, David Wehner, said that research and development increased 35 per cent, driven in part by Reality Labs as well as increased operating costs for that part of the business. He said he expects spending at this level to continue.

“While the data at the moment is not flattering, R&D rarely is a money-making operation,” Cathy Hackl, chief metaverse officer at Futures Technology Group, told The National.

“I see the focus Meta is placing on Meta Reality Labs as their bet on figuring out what the future of the company is and an understanding that their current ad revenue business model might need to change as growth with other parts of the business start to flatten or slow and we head into a Web3 era.”

As to whether these massive outlays are discouraging to the wider technology community working on Web3, she said Meta is not “the only player”.

“Many of us are working to a more open and possibly decentralised metaverse, so I'm actually very pro-topian about the future.”

Still, it cannot be denied the blank-cheque nature of Meta’s most audacious projects – and its ability to push smaller players to the side. Even after dropping 20 per cent in after-hours trading, the company’s market cap was nearly $900bn at the close of trading on Wednesday.

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Still others are more skeptical that Meta’s foray into virtual worlds will even pay off.

AR and VR demand more data, out of reach for huge populations in the developing world who can easily call up the much lighter Facebook app on their devices. And some of the AR or VR experiences demand the all-encompassing use of clunky headgear.

Applications for VR and AR are also still better aligned to business-to-business applications such as health care, as in remote surgery, or energy, to monitor assets.

Because of these requirements, it may simply have a smaller addressable market – or one that Meta is simply not equipped to cater to.

Tom Goodwin, author of Digital Darwinism, told The National the metaverse is too niche, catering to a gamer community rather than the average person.

“I think there will be some people that fall on one side of the threshold, and on this side it’s nice to go for a walk and to look at a bird and to skim a stone into a pond, and there'll be other people that think that online gaming is amazing, and they can do all sorts of things they otherwise wouldn't be able to do,” he said.

“I personally am a big fan of reality,” he said. “I’m slightly worried about the way that some of this stuff is going.”

Ayesha Khan contributed to this report