Meta’s Reality Labs Takes a Hit, But Investors Still Bullish

Investors are still bullish that Meta Platforms’ push into the metaverse will help prop up weak earnings caused by Apple’s new privacy policy and competitors.

As Meta Platforms faces pressure from competitors in the advertising space, its gamble on metaverse technology embodied in Reality Labs, suffered a blow in the second quarter, racking up huge losses.  

Despite Reality Labs’ huge losses, investors remain optimistic the division that focuses on developing augmented and virtual reality hardware and software to supplement its shrinking ad revenue, will succeed.

Zuckerberg still optimistic

Meta announced second-quarter revenue of $28.8 billion, down from $29.1 billion in the first quarter of 2021, marking the first instance of a year-on-year decline. Investors were expecting $29 billion in Q2.

Reality Labs’ operating losses increased from $2.4 billion in the second quarter last year to $2.8 billion this year. In Q1 2022, the division lost $3 billion. Revenue grew from $305 million in the second quarter of last year to $452 million in the three months ending June 2022 but fell below revenue in Q1 of $695 million.

CEO Mark Zuckerberg remains optimistic about the growth opportunities to be found in the division. He predicts revenue streams from the company’s metaverse initiative to rack up billions, if not trillions of dollars. He added that it is a very costly endeavor for Meta.

Of particular interest to the cryptocurrency industry is the development of a cryptocurrency wallet called Meta Pay, which pundits say must protect consumer assets and clarify which assets will be supported. This follows Meta’s announcement of the suspension of its Novi wallet earlier this year, and its failed Diem project that won over no friends in Congress.

How will Zuck make good on his promises?

An analyst Brian White from Moonness, Crespi, Hardt & Co., changed his price target for Meta stock from $230 to $250, while Yousseff Squali from Truist Securities believes that the pivot to the metaverse mirrors some of the company’s earliest successful wagers: mobile and social media stories.

But the recruitment landscape is changing. Researcher Revelio Labs revealed that job postings for metaverse positions declined 81% in the second quarter, after a spike when Meta announced a change in its name from “Facebook ” to “Meta” last fall. Tech workers from Silicon Valley to Bangalore are receiving a frosty reception as the industry slowdown continues.

This leaves questions as to how Zuckerberg will make good on his metaverse promises to investors. In the earnings call on Wednesday, Zuckerberg explained that reduced revenues have necessitated cutbacks on long-term investments and a suspension of hiring. Google, which continues to make strides in augmented reality, has also suspended hiring.

But the market for freelance work in the metaverse, including the development of 3-D environments and avatars, has more than quadrupled.

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