Facebook Parent Meta Misses Revenue Estimates for Metaverse Division in Q3, Expects Losses to Grow in 2023

In its Facebook Reality Labs (FRL) business, which includes its augmented and virtual reality operations, Meta Platforms (FB) reported third-quarter sales of only $285 million, according to its earnings report released Wednesday. That was down from $452 million in the second quarter and far less than the $406 million consensus expert projection.

Overall, FRL accounted for a loss of $3.7 billion in the quarter, up from a loss of $2.8 billion in the second quarter.

Additionally, the business stated in a news release that it anticipated "significantly" year-over-year growth in FRL's operating losses in 2023. "Beyond 2023, we expect to pace Reality Labs investments such that we can achieve our goal of growing overall company operating income in the long run," it said.

Although he acknowledges concerns about Meta's direction, CEO Mark Zuckerberg remained  optimistic about the metaverse on the company's conference call on Wednesday. He continued that not focusing on the metaverse would be "a mistake" and predicted that it would have a significant influence in the future. He expressed optimism on Meta's Quest Pro VR headset and added that he anticipates more workers eventually using virtual and mixed reality to do their tasks.

In Wednesday's after-hours trade, Meta shares decreased by over 15%. This year, shares have dropped more than 60%.

Due to decreased user growth rates and fewer ad spending, Meta has come under pressure from investors to reduce spending on the metaverse. In 2021, Meta recorded a loss of $10.2-billion on FRL revenue of $2.3-billion, and the company has stated it is committed to investing even more in the division over the following few years since it sees it as a key engine of future growth.

According to FactSet, Meta's adjusted quarterly earnings per share for the firm as a whole came in at $1.64, missing the analyst average forecast of $1.90, but its overall sales of $27.7 billion exceeded expectations of $27.4 billion. With a range of $30 billion to $32.5 billion for Q4 sales, it fell short of the average estimate of $32.3 billion at its midpoint of $31.25 billion.

Earlier this week, Bank of America downgraded shares of Meta from buy to neutral and noted that the company's massive investment in the metaverse is likely to continue to be an "overhang" on the stock. The bank also noted that given the slow growth in user numbers, potential new competition from Apple, and a "higher cost of capital mindset," analysts are unlikely to deduct the metaverse expenditure from EPS for valuation purposes.