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Meta Reduces Metaverse Loss But Stock Price Plummets Anyway

Meta announced an increase in spending but a reduction in its Metaverse Reality Labs arm

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Meta has disappointed Wall Street in its latest earnings report, causing its stock price to wipe out $200 billion in market cap after hours.

Mark Zuckerberg's tech giant revealed it plans to increase spending, scaring the market. Meta plans to up spending from an earlier prediction of $30-$37 billion to $35-$40 billion in 2024.

The investor base is no longer tolerant of the outdated "trial and error" approach. Meta has a wide range of resources, but they do have their limits.

Meta predicted lower-than-expected sales for the upcoming quarter while aiming for larger capital expenditures, sending shares of Facebook's parent company down as much as 19% in after-hours trading and a tech-heavy exchange-traded fund down as much as 1%.

Nonetheless, Meta actually beat expectations on earnings. First-quarter revenue rose 27% to $36.46 billion, beating analysts' expectations of $36.16 billion.

Meta's metaverse arm, Reality Labs recorded a $3.85 billion operating loss, marking a reduction in its loss from last quarter's $4 billion. Analysts had expected a loss of $4.31 billion.

Meta’s Metaverse Arm Reality Labs Loses $4 Billion in Best Quarter Ever
Meta’s metaverse arm, Reality Labs, generated over $1 billion in Q4 but its losses continue to mount

Revenue in Meta's metaverse division rose 30% one year ago to $440 million but represents 1% of Meta's total sales for the quarter.

Reality Labs has now lost over $45 billion since the end of 2020, when Meta separated the entity.

Zuckerberg said he had anticipated the stock's sell-off. “I think it’s worth calling that out, that we’ve historically seen a lot of volatility in our stock during this phase of our product playbook where we’re investing in scaling a new product but aren’t yet monetizing it,” Zuckerberg said.

Meta unveiled the Quest 3 VR headset in September, offering an updated experience for Meta Horizon's metaverse.

“There are several ways to build a massive business here including scaling business messaging, introducing ads or paid content into AI interactions," Zuckerberg added.

Meta also warned that Reality Labs losses will likely continue. "For Reality Labs, we continue to expect operating losses to increase meaningfully year-over-year due to our ongoing product development efforts and our investments to further scale our ecosystem," the firm said.