Facebook intends to spend at most $10 billion on Facebook Reality Labs this year, its metaverse division that is responsible for creating AR and VR hardware and software as well as content.
The company stated that it is committed to realizing this long-term vision and plans to increase its investments over the next few years. Facebook believes AR and VR are key to the next generation online social media experiences.
This is a sign that Reality Labs should not be compared to Facebook's core apps
This division already produces the Oculus Quest headset, Portal line of calling devices and Portal series of smartphones. It is being promoted as the next big thing within Facebook. One, Mark Zuckerberg, the CEO of Facebook has been talking non-stop about the metaverse for several months. Today, Facebook announced that it will begin reporting earnings for its Reality Labs section. However, the main ads business, which amounted to $28 billion, will be reported under a different bucket. Investors will see this as a signal that Reality Labs is important and should be evaluated separately from Facebook's current value.
It is also an attempt to distract from the other events in Facebook's earnings. The revenue forecasts were not met by the company. This is not much at Facebook's scale, which speaks volumes about some of the company's current problems. Facebook attributes this to COVID-19, the economy and Apple's recent ad tracking changes, which we also saw last week, when Snap reported earnings.
Apple released iOS 4.1 in April, which includes a privacy feature that requires users actively opt in to allow apps across other apps or websites to track them. Initial statements by social media companies indicated that they were not sure how it would affect their advertising businesses. Ads businesses rely on this tracking to evaluate the effectiveness of ads.
Facebook has had a difficult few weeks. The Wall Street Journal published a series of stories detailing significant mistakes by Facebook. The stories included concerns about mental health and moderation issues for younger users. The whistleblower who leaked the documents also testified in Congress. And just this morning, dozens more stories were published by a consortium news outlets including The Verge. These stories cover even more problems for Facebook including declining teens' usage. In the middle of it all, Facebook's apps went down for an entire day in October.
On Monday's call with investors, Mark Zuckerberg took a defiant tone regarding the leaked documents. He said they were part in a coordinated effort paint a false image of our company. He then moved to talk about Facebooks efforts to court young people, and to build the metaverse. This reinforces the idea that the company wants to push for something new, where it might be able to escape some of the scrutiny.
Updated October 25, 2006, 06:10 ET: This story was updated with comments from Facebook's earnings call.