Is Facebook (NASDAQ:META) parent company Meta Platforms Inc (NASDAQ:FB) still a social media company, or is it now a virtual reality enterprise? Perhaps a burgeoning artificial intelligence thought leader?
This was the line of enquiry fielded by a stock analyst from AllianceBernstein on Wedensday’s second-quarter earnings call.
“A month ago, we weren’t talking about Reels. A quarter ago, we weren’t talking about Llama, and start of the year, we were barely talking about AI.” Assuming he meant Threads when mentioning Reels, his observation was astute.
Basically, investors want to know where Zuck is spending his time.
After all, Reality Labs, the division in charge of developing Meta’s flagship metaverse product Horizon Worlds, has cost the group around US$40bn in losses in a few short years.
If you ask him, Meta’s priorities “have been pretty consistent for a few years now”. Besides, the metaverse “is a very long-term bet” that will take years (decades?) to make good.
In the meantime, it is quite clear that artificial intelligence and deep learning are the shiny new toys of interest for Meta’s management team.
A quick keyword search of Wednesday’s earnings call is one way of figuring out Zuck’s priorities.
Throughout the call, the term ‘AI’ came up at least 46 times in the context of artificial intelligence.
‘Metaverse’ came up only 12 times; barely a quarter against AI.
Meta’s flagship metaverse project Horizon Worlds was mentioned all but once.
Is that all a US$40bn investment and counting merits?
Unfortunately, Meta doesn’t have the guts to disclose active user counts on Horizon Worlds.
This had led to speculation that active user count tanked 33% in the first eight months post launch, with an estimated 200,000 legless avatars inhabiting the virtual space.
But even if conversation and general public interest have pivoted away from the metaverse towards AI recently, the story is different if you follow the money a bit deeper.
Counting the cost of the metaverse
It is true that firm-wide capital expenditure projections for full-year 2023 have been revised down a bit (from a range of US$30bn-US$33bn to a range of US$27bn-US$30bn).
Yet Meta expects Reality Labs’ operating losses to “increase meaningfully year over year due to our ongoing product development efforts in augmented reality/virtual reality and investments to further scale our ecosystem”, read the company’s trading statement.
Research and development costs increased 8% this quarter, with US$4bn being pumped into Reality Labs.
At the same time, Reality Labs brought in 38% less revenues this quarter compared to the same quarter last year.
Revenues of US$276mln attributed Reality Labs in the latest quarter were less than one percent of firm-wide revenues.
Whether by a sunk-cost fallacy or dogged determinism, by all accounts, Zuck has not given up on his vision of the metaverse just yet.