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

Meta Platforms (FB) reported third-quarter revenue of just $285 million in its Facebook Reality Labs (FRL) division, which comprises its augmented and virtual reality operations, according to its earnings report released Wednesday. That was well short of the consensus of analyst estimates of $406 million, and down from $452 million in the second quarter.

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.

The company also said in a press release that it expected FRL's operating losses in 2023 to grow "significantly" year over year. "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.

On the company's conference call Wednesday, CEO Mark Zuckerberg remained optimistic about the metaverse, although he acknowledged concerns about Meta's direction. He added it would be a "mistake" not to focus on the metaverse and sees it having a strong impact in the future. He was also upbeat about Meta's Quest Pro VR headset, adding that he sees more workers over time being able to get their work done via virtual and mixed reality.

Meta shares fell over 15% in after-hours trading Wednesday. Shares are down more than 60% this year.

Meta has faced investor calls to reduce spending on the metaverse as lower user growth numbers and reduced ad spending have cut into its results. Meta reported a loss of $10.2 billion on revenue of $2.3 billion for FRL in 2021, and the company has said it is committed to spending even more on the division for the next several years, seeing it as a crucial driver of future growth.

For the company as a whole, Meta reported adjusted quarterly earnings per share for the third quarter of $1.64, missing the analyst consensus estimate of $1.90, according to FactSet, while Meta's overall revenue of $27.7 billion beat estimates of $27.4 billion. It guided for Q4 revenue between $30 billion to $32.5 billion, which at its midpoint of $31.25 billion was short of the consensus estimate of $32.3 billion.

Earlier this week, Bank of America downgraded shares of Meta to neutral from buy, adding that Meta’s huge investment in the metaverse is likely to remain an “overhang” on the stock, noting that analysts are unlikely to back out metaverse spend from earnings per share (EPS) for valuation purposes given the lack of progress with users, potential new competition from Apple and a “higher cost of capital mindset.”

Read more: Meta Downgraded by BofA to Neutral From Buy Partly on Metaverse Concerns

UPDATE (Oct. 26, 20:31 UTC): Adds detail throughout.

UPDATE (Oct. 26, 22:22 UTC): Adds commentary from earnings conference call along with previous Metaverse analyst commentary.