Meta (META)’s Reality Labs is still bleeding cash.

The division, which focuses on the company’s AR, VR, and metaverse initiatives, reported a loss of $4.48B in its Q2 earnings on Wednesday. Reality Labs revenue accounted for less than 1% of Meta’s total revenue.

On Thursday, Meta stock shot up roughly 9% when market opened.

The numbers come after Yahoo Finance reported last week that the multibillion-dollar losses at Reality Labs are the result of a lack of a clear vision, frequent restructuring, and leaders who don’t have AR and VR expertise.

We interviewed more than a dozen former Reality Labs employees who have been granted anonymity due to non-disclosure agreements and fear of jeopardizing future employment opportunities. Since that report, more insiders have reached out to Yahoo Finance, confirming the details in the story and offering additional insight.

“A few years ago I would have predicted that holographic AR would be possible before smart AI but now it looks like those technologies will actually be ready in the opposite order,” CEO Mark Zuckerberg said on the earnings call. “We’re well positioned for that because of the Reality Labs investments we’ve already made.”

Losses in the metaverse division have exploded in the last four years, even as Zuckerberg shifts his focus to AI. In 2020 Reality Labs lost over $6 billion. The unit sunk $10 billion in 2021, $13 billion in 2022 and $16 billion in 2023.

In June, Reality Labs laid off roughly 100 employees, according to two people familiar with the matter. The cuts included several vice presidents, managers, as well as dozens of employees in the research division and technology engineering teams. Insiders tell Yahoo Finance that several “big bets projects” were also canceled.

“A software company is trying to get into hardware and doesn't know how to manage it,” said a former manager in engineering. “They’re getting ahead of themselves with product launches and work teams when they don't even know what the technology is yet.”

Meta’s current hardware products on the market include its Quest 3 and Quest Pro headsets and Ray-Ban smart glasses. In April it announced it would offer its operating system, Horizon, to external hardware companies.

The company has recently been teasing that its prototype augmented reality glasses is nearly ready to unveil. Referred to internally as "Orion," Meta has thrown tens of billions of dollars at the nine-year-old project.

However, some former employees who worked on the glasses question whether the company will ever release it to the public.

“I would expect pretty substantial losses per device on the glasses,” a former engineer said. “Probably closer to the $1,000 per unit range, but it depends on what they end up trying selling them for and what features they end up including. They don’t even know if they’ll ever make them to sell.”

In 2021, the metaverse became a buzzword following Zuckerberg’s announcement that his social media company, Facebook, would be renamed to Meta. Zuckerberg enthusiastically claimed that humanity would one day in the near future socialize, work, and play in a shared virtual world.

However, recent data suggests the metaverse revolution may be dwindling. Research from consumer analytics firm, CivicScience, found that adoption and intent to purchase AR and VR headsets has plateaued this year.

According to market intelligence firm, IDC Global, shipments of AR and VR headsets dropped some 67% year-over-year in Q1 2024. Meta’s market share has plummeted as others like Apple (AAPL) entered the scene, falling from 62% in Q4 2023 to 37% in Q1 2024.

“With AR and VR, Meta came up with a solution when there never really was a problem,” said a former Reality Labs employee. “It’s not worth the amount of investment they’re putting into it. If they’re smart they’ll scale back to 10% the size of the operation they are now. Someone else can come up with the hardware and use Meta’s Horizon OS. That will make Zuck happier - being part of the Metaverse.”

Yasmin Khorram is a Senior Reporter at Yahoo Finance. Follow Yasmin on Twitter/X @YasminKhorram and on LinkedIn. Send newsworthy tips to Yasmin: [email protected]

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