Meta Shares Rise After Report of Deep Cuts to Metaverse Spending

Meta Platforms shares gained roughly 4% in Thursday trading after a Bloomberg report indicated that Chief Executive Officer Mark Zuckerberg is considering sizable reductions to the company’s metaverse investments. According to people familiar with internal discussions cited by Bloomberg, senior leaders have examined trimming the budget for the immersive-reality initiative by as much as 30% as part of long-range financial planning through 2026.

The contemplated reductions would represent a significant shift for the California-based technology group, which changed its corporate name from Facebook Inc. to Meta Platforms Inc. in October 2021 to signal a strategic focus on virtual and augmented reality. While announcing that rebrand, Zuckerberg described the metaverse as the company’s next major chapter, comparable in importance to the rise of social networking during Facebook’s early years.

If finalized, the planned cuts are expected to affect multiple areas inside Meta’s Reality Labs division, the unit responsible for the Quest line of virtual-reality headsets as well as Ray-Ban and Oakley smart glasses that incorporate artificial-intelligence functions. Bloomberg reported that layoffs are likely to accompany the budget reductions, but precise staffing decisions have not yet been made. Meta declined to comment on the matter when contacted by Bloomberg.

The possibility of belt-tightening arrives as Reality Labs continues to post heavy losses. The unit reported an operating loss of $4.4 billion in the most recent quarter, bringing cumulative losses since late 2020 to more than $70 billion, according to company disclosures. Those figures are detailed in Meta’s latest quarterly filing available on the U.S. Securities and Exchange Commission website.

Financial pressure on the metaverse initiative has coincided with a broader corporate pivot toward generative artificial intelligence. In recent public remarks, Zuckerberg has identified AI as Meta’s primary area of technological emphasis, a move that places the company in direct competition with Alphabet, Microsoft and other large platform providers investing heavily in AI infrastructure and consumer-facing tools.

The stock-market response to the Bloomberg report suggests investors view reduced metaverse spending as potentially positive for earnings. Shares were up about 4% intraday on Thursday, extending a rally that has made the stock one of the top performers among mega-capitalization technology names this year. Meta’s market value remains sensitive to shifts in operating expenses, particularly those tied to long-term projects that have yet to generate meaningful revenue.

Internally, the proposed metaverse cuts are part of the company’s budget planning cycle for 2026. Executives involved in the review have evaluated different scenarios, with the most aggressive option calling for a 30% reduction in funding for Reality Labs. The deliberations include assessments of hardware roadmaps, software development timelines and head-count requirements for research and product support teams.

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Meta has conducted several rounds of layoffs since late 2022 as part of a broader efficiency campaign aimed at streamlining operations after years of rapid workforce expansion. Those earlier actions focused on recruiting, marketing and some engineering groups. The metaverse initiative has largely been spared until now, even as investors questioned the pace of spending on products that may take years to achieve mainstream adoption.

While virtual-reality headsets have gained traction among gaming enthusiasts and developers, industrywide sales remain modest compared with smartphone or personal-computer volumes. Analysts have pointed to content limitations, device cost and user comfort as obstacles to wider uptake. Reducing the investment burn rate could give Meta additional flexibility to concentrate on AI-driven products and advertising technology, areas that feed directly into current revenue streams.

Meta is scheduled to deliver its next quarterly results in the coming weeks, when executives are likely to face renewed questions about capital allocation and the status of long-term projects. For now, the company has not issued formal guidance regarding any change to spending on Reality Labs or head-count targets within that division.

Crédito da imagem: Vincent Feuray | AFP | Getty Images