Reality Labs: A Brief Guide to Meta’s Business and Research Unit
Reality Labs was founded in June 2020. The research unit is responsible for VR and AR development, including the hardware and software needed to support these technologies. That said, Reality Labs is producing virtual reality headsets, such as Quest, and online platforms for further metaverse development, including Horizon Worlds.
Reality Labs is a merger company under Meta’s wings. It’s an incorporation of several companies acquired by Meta, so it was clear from its inception that Meta had high hopes and, as we later see, high bets for the company.
Source: Reality Labs
Of course, we shouldn’t downplay Reality Labs’ contribution to the metaverse because the company sped up the research process and shortened the learning curve for other players in the industry. All the research, experimentation, and continuous creation allowed Reality Labs to develop Oculus Quest 2, the best virtual reality headset for commercial use. Not only that, but Reality Labs put the Quest 2 up for sale for a relatively affordable price compared to other high-end products on the market, whose quality wasn’t nearly as satisfactory as Quest’s.
Now, Zuckerberg’s vision of the internet has become metaverse-oriented. As a result, he is pouring billions into Reality Labs without much regard for how his investors react to his, as some would call it, reckless spending.
How Much Did Meta Lose on Reality Labs in 2022?
The last quarter of 2022 wasn’t kind to Reality Labs, as the company recorded an operating loss of $4.3 billion. The last quarterly financial report for 2022 was like a cherry on top of the cake, except the cherry in this case is a multi-billion-dollar loss, and so is the cake.
In other words, 2022 was a disastrous year for Reality Labs and its parent company Meta. Meta’s losses on Reality Labs amounted to $13.7 billion, which is $3.5 billion more than in 2021, when this relatively young company had an annual loss of $10.2 billion.
Even 2020, the year when Reality Labs was founded, wasn’t something to be proud of. That year, Meta lost $6.6 billion on Reality Labs. That is over $30 billion in total since Reality Labs appeared on the VR scene.
Photo illustration: Freepik
You may be wondering when Reality Labs will see some real net income.
Well, not anytime soon. This era of losses and sacrifice is just the beginning, and this financial disruption will follow Meta like a ghost until it reaches its goals regarding VR development.
Still, some may argue that Meta could give up anytime soon on the project, leaving investors to drown in losses if Meta’s stock price goes down.
Is Meta’s Investment in Research labs Justified?
Metaverse is under construction, but it can only make significant improvements after a period of time. That said, it might take, possibly, decades to build a technology that reflects the potential of virtual reality, creativity, and people’s desperate need for improvement.
Meta’s vision is to someday offer the world technology that allows us to elevate the way we interact online and change our perception of one’s social limitations. It goes as far as trying to invent technology that allows us to feel like we’re sharing space with other people when, in reality, all we would be doing is use a piece of equipment to jump into the metaverse.
Photo illustration: Freepik
Compared to the rate of virtual reality’s advancement, Meta’s vision seems like a lost cause, a distant goal one wouldn’t be able to achieve in one lifetime. That is, of course, if they weren’t a multi-billion-dollar industry leader with more than enough to invest billions of dollars in research and development and, therefore, speed up this process.
Truth is, Meta is a multi-billion-dollar company that can afford to invest in improvements. So if you look at it from another perspective, Meta’s decision to pour money into research that could lead to great technological advancements doesn’t seem like reckless investing.
Does Meta Intend to Spend More Money on Reality Labs?
Meta warned us about its decision to invest billions of dollars in virtual reality advancements without expecting profits anytime soon. The company recognizes that a sacrifice of such magnitude is necessary and is therefore investing roughly 20% of its annual net income in Reality Labs.
Still, investors continually question if Meta can commit to this plan. Zuckerberg said it would take roughly 10 years for the metaverse go mainstream. But what will happen in the meantime? Can investors rely on his word? What guarantees them that Meta will continue to invest in its metaverse project and take the losses like a champ?
If Meta suddenly abandons the project for whatever reason, its ship will sink, and it will drag all investors with Meta stocks in their portfolio into the market’s abyss.
Furthermore, Reality Labs still doesn’t generate net income, so we can’t use any positive metrics to predict the return on investment. Instead, investors rely on the possibility that Reality Labs would recoup its losses after the research period ends and they have something revolutionary to offer to the world.
That said, Meta could be slowly dragging itself and its shareholders through the mud, and these multi-billion-dollar losses might show the direction in which the company’s headed. Investing in the stock market is already risky. Expecting your shareholders to put a little faith in you is a bold move that could result in losses of unfathomable magnitude. Not only should Meta tread carefully, but it should also find a way to justify its spending on Reality Labs better. If it doesn’t, its investors might flock to the next best thing in VR, leaving this VR and metaverse giant to fend for its life alone.