Meta's Reality Labs is spiraling out of control a decade after purchasing Oculus VR. There's no end in sight.

Quest 3, Meta Reality Labs isn't profitable despite producing one of the most advanced VR headsets. In 2023, nearly $2 billion in revenue was completely wiped out by $18 billion in expenditures. Mark Zuckerberg's metaverse dream is now facing a $16 billion loss. The CEO has stated that the losses are expected to continue for some time.

Meta's virtual-reality woes shouldn't come as a surprise. The company regularly posts financial statements that show the revenues, operating profits (or losses), and other details of each division. Yahoo Finance reported that the burning through of almost $50 billion over four years was not due to technical development costs or cutting edge research. Instead, it was due to a "lack vision and mismanagement."

In March 2014 an almost unthinkable thing happened. Facebook, a social media platform which had long since ceased to be cool with the kids, bought virtual reality hardware company Oculus VR for $2 billion. Oculus VR, which had just released its first product - the Oculus VR headset - was a relatively new company. Some felt that the acquisition was contrary to the nature and purpose of Kickstarter, a crowdfunding project that funded the hardware's development.

The division was awash in cash by the time Facebook fully integrated Oculus VR and rebranded the division as Facebook Reality Labs. The popularity of the Oculus Quest 2 (now called the Meta Quest 2) led to an annual revenue just over $1 billion. Even by the tech world's standards, that was a large sum of money.

In the same year Reality Labs spent just under $8 billion. This gave the division a operating loss totaling $6,600,000,000. This figure was even worse in 2021 (a loss of $10b), 2022 (a loss of 10.1b), and 2023 (13.6b). According to Yahoo Finance Meta has already lost between $8.4 billion and $8.8 million in 2024.

Meta's chief executive officer warned in its Q2 report last year that "for Reality Labs we expect operating losses will increase meaningfully over the past year due to our ongoing efforts in product development in augmented/virtual realities and investments to scale our ecosystem."

How can you turn around a situation where the operating loss is multiples of the revenue? Even if Reality Labs makes a profit in the next year, shareholders will not be happy with all of the expenses incurred to get there.

According to the people interviewed by Yahoo Finance, Meta's Reality Labs has been a scene of chaos, with "chain of command reorganizations...every three to six months" and a "lack of understanding of the technology [which] often led to tension between new managers and the existing staff."

Meta currently has four AR/VR devices on the market: Quest 2, Quest 3 Quest Pro and Ray-Ban Meta Smart Glasses. Meta was said to have had 24 hardware devices on an 18-month time schedule in the past. This seems like a ridiculous number of devices to streamline and support.

Meta spent an unknown amount of money on its own chips for AR and VR before switching to Qualcomm processors by 2021, much to the chagrin of its engineers. Meta has also lost some key figures in VR over the years. These include Oculus cofounder Nate Mitchell, and legendary game developer John Carmack who left in 2019.

Meta's willingness or ability to sustain losses is unknown, but the share price is near its highest level ever. The market does not seem too concerned at this time. I don't think Meta will shut down or sell off its Reality Labs anytime soon, given how much Zuckerberg invested in augmented and virtual reality. But there isn't an infinite pot of money to keep the company afloat.

Don't be surprised if Meta's excellent Quest 3 VR headset is the final VR effort from its Reality Labs.