As losses mount and the AI race heats up, Zuckerberg’s Reality Labs faces a 30% cut, signaling a strategic shift toward smart glasses and wearables.
- A Major Strategic Shift:Â Following a strategy meeting in Hawaii, Meta is planning to cut the Reality Labs budget by up to 30%, pivoting resources from virtual spaces like Horizon Worlds toward AI glasses and wearables.
- Financial Course Correction:Â The division has racked up over $60 billion in losses since 2020; analysts predict these cuts could save the company between $4 billion and $6 billion by 2026, boosting stock value.
- A “Critical” Year:Â Amidst leadership shakeups and employee uncertainty regarding layoffs, CTO Andrew Bosworth has described this period as decisive in proving whether the metaverse is a “visionary feat” or a “legendary misadventure.”
The era of unchecked spending on the metaverse appears to be drawing to a close at Meta. In a decisive move following a strategy meeting at CEO Mark Zuckerberg’s Hawaii compound, the tech giant is planning to slash the budget of its Reality Labs division by up to 30%. This significant reduction marks a turning point for the company, which famously rebranded from Facebook to Meta to signal its total commitment to a virtual future. However, faced with a competitive AI landscape and staggering historical losses, the company is now forced to recalibrate its ambitions.
From Virtual Worlds to AI Wearables
While the “Metaverse” was once the singular focus, the wind is shifting toward hardware that integrates artificial intelligence. According to a Meta spokesperson, the company is strategically moving investment within the Reality Labs portfolio away from pure metaverse projects and toward AI glasses and wearables. This decision is driven by tangible success; Zuckerberg recently noted that Meta’s Ray-Ban smart glasses have “really taken off,” with sales tripling over the last year.
Conversely, platforms like Horizon Worlds—Meta’s virtual social space—may face the brunt of these reductions. Directors have reportedly told staff that the majority of the cuts will target operating expenses, including payments to third-party studios commissioned to create games for Horizon. However, uncertainty looms large within the workforce. Despite assurances that cuts are focused on operational costs, employees remain anxious about potential layoffs, especially given that Reality Labs already underwent a round of undisclosed cuts in April that affected Oculus Studios and the team behind the VR fitness app Supernatural.
The $60 Billion Question
The financial pressure behind this decision is immense. Since 2020, Reality Labs has accumulated losses exceeding $60 billion. Investors have long scrutinized this cash burn, a sentiment famously echoed by Evercore analyst Mark Mahaney during a recent earnings call when he asked if and when these losses would ever subside.
The market’s reaction to the proposed cuts was immediate and positive. Meta’s stock rose as much as 4% following the news, adding $69 billion to its market cap and pushing the company’s total value to $1.68 trillion. Analysts view the budget reduction as a sign of fiscal discipline. TD Cowen estimates that a 30% reduction could translate to $4 billion to $6 billion in cost savings for Reality Labs by 2026. Similarly, BNP Paribas analysts suggest these moves demonstrate Meta’s willingness to pause long-term metaverse ambitions to chase nearer-term, lucrative AI opportunities.
Leadership Shakeups and the “Weight of History”
The budgetary overhaul is accompanied by significant changes in leadership. The company recently hired Alan Dye, a former Apple design leader, to head a new Reality Labs creative studio. Meanwhile, Vishal Shah, a key figure in Meta’s metaverse initiatives for four years, is transitioning to Meta Superintelligence Labs, further signaling the company’s aggressive tilt toward AI.
For those remaining in the metaverse division, the pressure to deliver is higher than ever. In a candid internal memo, Meta CTO Andrew Bosworth described 2024 as the “most critical” year yet. He framed the current moment as the deciding factor in whether the project becomes a triumph or a “legendary misadventure.”