TLDR
- Mark Zuckerberg is preparing to reduce metaverse spending by up to 30% in 2026, triple the usual budget cut request.
- The Quest VR headset division and Horizon Worlds platform will bear the brunt of the reductions.
- Reality Labs division has burned through $70 billion since 2021 with a $4.4 billion loss last quarter alone.
- Meta shares climbed 4-5.7% following the news, the strongest single-day performance since July.
- Zuckerberg has quietly redirected company resources toward AI models and Ray-Ban smart glasses technology.
Meta shares rallied Thursday after reports surfaced that the company plans major cuts to its virtual reality operations. The stock climbed as high as 5.7% during morning trading.
Executives are weighing budget reductions of up to 30% for the metaverse division next year. These discussions happened during planning meetings at Zuckerberg’s Hawaii property in November.
The reductions would mark a dramatic pullback from Meta’s VR ambitions. Zuckerberg renamed the entire company from Facebook to Meta in 2021 to signal his commitment to virtual worlds.
He declared at the time that the metaverse represented “the next frontier” for computing. That vision hasn’t materialized the way he expected.
Job cuts will probably start in January if executives approve the plan. Nothing is finalized yet according to sources familiar with the deliberations.
Quest VR and Horizon Worlds Face Biggest Cuts
The Quest headset business will see the largest reductions. It accounts for most of the metaverse-related expenses within Meta.
Horizon Worlds is also on the chopping block. The virtual meeting platform never gained meaningful user adoption despite heavy promotion.
Meta typically asks divisions to identify 10% savings during annual budget reviews. The metaverse group received a 30% target this year because industry competition never developed as predicted.
Other tech companies largely stayed out of the VR race. Meta found itself investing heavily in a space without the ecosystem it anticipated.
Reality Labs houses all of Meta’s experimental hardware projects. VR headsets, AR glasses prototypes, and other futuristic devices live within this division.
The unit has posted staggering losses since 2021. Total red ink exceeded $70 billion through the end of last quarter.
Last quarter’s loss alone hit $4.4 billion. Investors have grown increasingly frustrated watching money disappear into these projects.
The Pivot to Artificial Intelligence
Zuckerberg stopped talking about the metaverse months ago. His public comments now center almost entirely on AI technology.
Meta’s Llama language models have become a key talking point. The company positions these as open-source alternatives to proprietary AI systems.
Meta AI, the company’s chatbot product, also gets frequent mentions. Zuckerberg regularly discusses how AI will transform Meta’s core social products.
Ray-Ban smart glasses represent another priority area. These devices feature AI capabilities rather than immersive VR experiences.
Meta just brought in Apple’s leading design executive. The hire suggests the company still wants to build consumer hardware despite scaling back VR.
Wall Street analysts have criticized the metaverse spending for years. Many viewed it as wasteful allocation of capital that could strengthen profitable businesses.
Mike Proulx at Forrester Research predicted last April that Meta would shut down Horizon Worlds. He called Reality Labs “a leaky bucket” draining company resources.
Child safety advocates raised concerns about the virtual platforms. They argued Meta failed to protect young users in these digital spaces.
The Facebook rebrand happened during a crisis period. The company faced mounting pressure over misinformation, data privacy, and mental health impacts.
Zuckerberg chose that moment to bet the company’s future on virtual reality. He believed it would solve Facebook’s reputation problems while opening new markets.
Three years later, the metaverse remains a niche interest. Mainstream consumers haven’t embraced VR headsets for work or entertainment.
Meta’s planning process concluded that fewer resources should flow to underperforming initiatives. The metaverse group couldn’t justify its current budget level given weak results.
