Meta's Major Budget Cuts Amidst Metaverse Challenges

Meta Reality Labs is reportedly facing budget cuts of up to 30%, according to a Bloomberg report. This figure is significantly higher than the usual 10% that CEO Mark Zuckerberg typically requests during budget cycles.

Reality Labs is the division behind Meta's Quest headsets, Horizon software, and smart glasses, as well as innovations like Codec Avatars and advanced AR glasses. Since breaking out financial results for Reality Labs in Q4 2020, it has been known that the division operates at a loss, primarily due to heavy investments in long-term projects.

As of 2022, over 50% of Reality Labs' spending was allocated to AR glasses research, with no true AR device launched yet. Despite these losses being viewed as long-term investments, Meta is under pressure to transition Reality Labs into a profitable business.

In July 2024, The Information reported a directive for a 20% spending cut by 2026, but Reality Labs' spending in the first three quarters of 2025 remained consistent with 2024 levels. The latest Bloomberg report comes as Meta is preparing its budget for the upcoming year, with executives considering cuts that could lead to layoffs as early as January.

The proposed cuts would primarily affect the VR and Horizon Worlds segments, coinciding with a decline in Quest headset sales in 2025. However, Meta has seen success in the smart glasses market, in partnership with EssilorLuxottica, which continues to sell smart glasses models rapidly.

This juxtaposition of success in smart glasses and struggles in VR is likely influencing Meta's decision-making for future investments.