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Meta to Cut About 10% of Reality Labs Workforce as Metaverse Push Scales Back

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Meta Platforms plans to cut around 10% of employees in its Reality Labs division, according to a report by the New York Times citing three people familiar with the discussions. The layoffs, which could be announced as soon as Tuesday, are expected to fall disproportionately on teams working on metaverse-related products, including virtual reality headsets and virtual social platforms.

Reality Labs employs roughly 15,000 people and has been at the center of Meta’s long-running bet on the metaverse, an immersive digital universe championed by Chief Executive Mark Zuckerberg. Since 2020, the division has burned more than $60 billion, as heavy investment failed to translate into mass adoption or meaningful revenue.

Beyond the metaverse, Reality Labs is responsible for several of Meta’s hardware initiatives, including Quest mixed-reality headsets, smart glasses developed in partnership with EssilorLuxottica under the Ray-Ban brand, and longer-term augmented reality glasses. While Meta has struggled to sell its broader vision of interconnected virtual worlds, its smart glasses have shown early traction—an area where rivals such as Google and Apple have so far failed to gain momentum with initial products.

According to the report, Meta Chief Technology Officer Andrew Bosworth, who oversees Reality Labs, has scheduled an in-person staff meeting for Wednesday and urged employees to attend, citing an internal memo.

Meta declined to immediately comment on the report. The planned cuts come as the Facebook parent faces growing pressure to refocus resources while trying to regain ground in Silicon Valley’s artificial intelligence race. Meta has recently struggled to generate enthusiasm around its latest AI efforts, including the Llama 4 model, adding to investor scrutiny over spending priorities.

Meta Reports Strong Q4 Sales But Forecasts Muted Outlook Amid AI Investments

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Meta Platforms (META.O) exceeded Wall Street expectations for its fourth-quarter revenue, reporting $48.4 billion, which outpaced analysts’ predictions of $47 billion. Despite this strong performance, the parent company of Facebook and Instagram issued a cautious outlook for the first quarter of 2025, with expected revenue between $39.5 billion and $41.8 billion, slightly below the analysts’ consensus of $41.72 billion.

Meta’s CEO, Mark Zuckerberg, struck an optimistic tone during a conference call, focusing on the company’s AI initiatives. He expressed confidence in the open-source AI strategy, commenting that the emergence of Chinese startup DeepSeek’s AI models reinforced his belief in this direction. “There’s going to be an open-source standard globally,” Zuckerberg remarked, emphasizing that he sees it as an American standard.

However, Meta’s outlook raised questions about the company’s capital spending, as the company relies on its core social media advertising business to finance its significant AI and “metaverse” investments, such as smart glasses and augmented reality systems. Meta has already committed up to $65 billion in capital expenditures for 2025 to expand its AI infrastructure, alongside increasing AI-related hires. The company also anticipates total expenses for 2025 to be between $114 billion and $119 billion, up from $95 billion in 2024.

Jeremy Goldman, principal analyst at eMarketer, noted that while Meta’s fourth-quarter results were strong, the key issue going into 2025 is whether its substantial AI investments will pay off. He highlighted that Meta’s family daily active people (DAP) metric, which tracks unique users who open any of its apps in a day, grew by 5% year-over-year to 3.35 billion.

Meta’s results came after DeepSeek, a Chinese AI company, launched new models that outperformed top U.S. competitors at a fraction of the cost, fueling concerns about the sustainability of U.S. AI business models and triggering a tech stock selloff. Zuckerberg acknowledged the challenges posed by DeepSeek but said it was too early to determine how its global impact would affect Meta’s AI strategy. He added that Meta’s AI teams were already incorporating insights from DeepSeek’s models into their work.

Meta continues to face financial losses in its metaverse-focused Reality Labs unit, which, while exceeding sales expectations, still reported a $5 billion loss in Q4. Despite these losses, Zuckerberg believes the long-term business potential of AI will become evident after 2025.

Meta’s hefty investment in AI includes plans to acquire more of Nvidia’s AI chips and develop custom silicon to train AI systems for better feed recommendations by next year. CFO Susan Li confirmed the company’s goal to use its own chips for these AI tasks. Meta’s continued investment in AI is part of its broader strategy to enhance user experiences across its platforms, while also aiming for cost reductions in AI model development.

 

What’s Next for Meta’s Metaverse?

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In October 2021, Mark Zuckerberg redefined the trajectory of his social media empire by rebranding Facebook as Meta, signaling a shift in focus toward the emerging metaverse. The move marked a strategic pivot for the trillion-dollar company, aiming to showcase its ambitions beyond being a social networking platform.

“The company Facebook wanted to make clear that it was more than just that one social website,” said Leo Gebbie, principal analyst and director at CCS Insight.

The Vision Behind the Metaverse

Zuckerberg’s vision of the metaverse isn’t new; it dates back to 2014, when Facebook acquired Oculus, a virtual reality (VR) headset developer, and launched Reality Labs. The company sought to position itself as a leader in immersive technologies, banking on the rapid growth of the global gaming and VR markets, which saw revenue exceed $193 billion during the pandemic.

“There was a bit of a sense in 2020 and into 2021 that this was a technology that was ready, that it was finally going to hit the big time,” Gebbie noted.

In December 2021, Meta launched Horizon Worlds in the U.S., a virtual reality platform designed as an open-world social space. While the platform’s initial target was to reach 500,000 monthly active users by the end of its first year, Zuckerberg’s long-term ambition was much grander: he envisioned the metaverse hosting one billion users by the end of the decade, engaging in significant e-commerce activity worth “hundreds of dollars” per user annually.

Challenges and Setbacks

Despite lofty ambitions, the metaverse has struggled to deliver on its promises. By late 2022, Horizon Worlds had just 200,000 monthly active users, according to an internal report cited by The Wall Street Journal. Interest in the concept of the metaverse itself waned sharply, as reflected by declining search trends on Google post-2022.

Additionally, Meta’s Reality Labs has faced steep financial losses, amassing $58 billion in operating deficits since 2020. These challenges have cast doubt on the metaverse’s feasibility and its capacity to generate sustainable user growth.

Bright Spots: Augmented Reality (AR)

While the metaverse has yet to gain significant traction, Meta has found success in augmented reality. Its partnership with Ray-Ban on AR glasses has demonstrated potential, offering consumers a taste of the future of wearable technology. These developments suggest that while the metaverse vision might be faltering, AR could represent a more pragmatic near-term focus for the company.

Looking Ahead

As the concept of the metaverse fades from the forefront of public discourse, Meta faces an uphill battle to turn its bold vision into reality. To achieve long-term success, the company must address its user engagement challenges, refine its product offerings, and manage escalating financial losses.

Meta’s next steps may involve recalibrating its strategy to emphasize augmented reality and exploring partnerships that can complement its ecosystem of immersive technologies. The company’s ability to innovate and adapt will determine whether it can revive the metaverse or pivot toward more achievable goals.