Meta's Metaverse Projects Face Deep Budget Reductions
Meta stock experienced a significant surge of 5.7% in early New York trading on Thursday, following internal discussions indicating that Mark Zuckerberg is preparing to substantially decrease funding for the company’s metaverse initiatives.
This pivotal decision emerged during budget discussions for 2026, which took place last month at Mark Zuckerberg's estate in Hawaii. During these meetings, he instructed executives to implement company-wide cost reductions. However, the metaverse division was specifically targeted for more substantial cuts, with proposals suggesting reductions of up to 30%.
These significant budget reductions are set to impact both Horizon Worlds and the Quest VR unit, which are considered the foundational elements of Meta’s virtual world aspirations.
These platforms were initially envisioned as the future of human interaction and commerce when Mark Zuckerberg rebranded Facebook to Meta in 2021. Despite this ambitious vision, they have not managed to capture significant user engagement or market traction.
The planned cuts, which may include layoffs commencing in January, are part of a broader strategic shift aimed at halting the substantial investment in ventures that are not yielding expected results.
Shift Towards AI Hardware and Reality Labs Investments
The company intends to reallocate the saved funds towards hardware projects that are more closely aligned with artificial intelligence (AI) development. This includes investments in products such as smart Ray-Ban glasses and other wearable technologies currently under development within the Reality Labs division.
The Reality Labs division itself has incurred losses exceeding $70 billion since 2021. The metaverse team, operating under Reality Labs, has now been directed to implement more severe budget cuts compared to other departments within the company.
Executives who participated in these discussions reportedly stated that Mark Zuckerberg's standard request for a 10% budget reduction across all teams remains in effect. However, Reality Labs has been subjected to a more significant financial impact due to the persistent lack of widespread developer and consumer interest in the metaverse.
One executive noted that the metaverse sector has not experienced the level of industry-wide competition regarding its core technology that was once anticipated.
Although Mark Zuckerberg continues to express belief in the eventual adoption of virtual worlds for work and social interactions, this conviction is no longer reflected in his current strategic priorities. He has notably reduced discussions about the metaverse during earnings calls and public statements.
Instead, his focus has shifted to AI models, chatbots, and AI-powered tools like Meta AI and Llama. These advancements necessitate the development of new hardware types, rather than an emphasis on virtual worlds.
Mike Proulx, a vice president at Forrester, had predicted in April that Meta would likely cease its metaverse projects, such as Horizon Worlds, before the end of the year. He further suggested that shuttering metaverse efforts would enable the company to dedicate more resources to its AI projects, including Llama, Meta AI, and AI glasses, as Reality Labs continues to be a significant drain on resources.
The stock price increase on Thursday marked the company's largest intraday gain since July 31st, as investors responded positively to what many perceive as a long-overdue implementation of budget discipline. Investors have consistently identified the metaverse as a financially imprudent investment.
The decision to significantly reduce funding, particularly given the ongoing weak revenue from Horizon Worlds and Quest, signals a strategic retreat even from within Mark Zuckerberg's core team.
EU Launches Antitrust Probe into WhatsApp's AI Policy
As Meta navigates its strategic realignment towards AI development, regulatory bodies in Brussels have initiated their own scrutiny.
On Thursday morning, the European Commission announced that it has opened an antitrust investigation. This probe aims to determine whether Meta's new AI access policy for WhatsApp contravenes competition laws within the European Economic Area (EEA).
The policy, which was introduced in October, prohibits companies from utilizing a business tool within WhatsApp if their primary service offering is AI.
This specific restriction has generated concerns in Brussels regarding Meta's potential abuse of its market position, by hindering third-party AI providers from reaching customers across Europe.
The Commission stated that while businesses are still permitted to employ AI tools for functions such as customer service, it is concerned that Meta's policy may "prevent third party AI providers from offering their services through WhatsApp in the European Economic Area."