zuckerberg-quest-3 — Meta CEO Mark Zuckerberg wearing Quest 3 | Image courtesy Meta

Reality Labs Revenue Drops to Lowest Point on Record Ahead of Quest 3 Launch

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Oct 25, 2023

Meta today announced its third quarter earnings, revealing that revenue of its Reality Labs XR division dropped to its lowest point on record, just ahead of the launch of Quest 3. All eyes are now on the holiday season to see if Meta’s new hardware will move the needle.

Meta announced the latest Reality Labs revenue figures today during its Q3 earnings call. While the division had shown strong performance when Quest 2 was the company’s hot new product, revenue has fallen on average as the headset has aged. That led Reality Labs’ Q3 2023 revenue to drop to $210 million, and a loss of 27% year-over-year. That’s the lowest point on record since Meta began divulging Reality Labs revenue in Q4 2020.

Due to Meta’s significant ongoing investments in Reality Labs, the division overall lost a whopping $3.74 billion in Q3 2023, continuing the trend of significant losses over the last 12 quarters. Meta has previously warned investors that these major investment expenses may not pay off until the 2030s.

Next quarter ought to see a significant revenue boost for Reality Labs thanks to a combination of new hardware and the holiday shopping season.

Quest 3 and Meta’s new Ray-Ban smartglasses launched just after the end of Q3. That means we won’t begin to see the impact of those new products on revenue until the company’s Q4 earnings announcement.

Historically, the Q4 holiday quarter has been the best performer for Reality Labs, and it’ll be interesting to see if Q4 2023 can top the division’s revenue record of $877 million in Q4 2022.

Veteran VR Studio nDreams Announces Layoffs Amid "challenging VR games market"

As for comments on the call, Meta executives didn’t have much to share at this point about the performance of the launch of Quest 3 or the Ray-Ban smartglasses. They didn’t offer much more than saying only that initial reviews were positive and they are happy with the launch of the new products, and excited to have them on the market on the leadup to the holidays.

Dragon Marble

Quest 3 has sold 30K+ on Amazon in the past month, more than PS5 in the same period. It has gathered twice as many ratings as PSVR2 to date.
- Christian Schildwaechter
  
  This comparison between the first sales month of Quest 3 and the 36th sales month of PS5 would be more enlightening, if we knew more about the typical sales channels. With the Quest 3, we are currently seeing sales to first movers, many of which will have ordered online to get it as soon as possible, while I’d expect PS5 sales to have shifted much more to people picking them up at local retailers. And the Quest 3 has been shipping for only a few days, so the second month with full availability and without pre-orders should provide a more useful comparison.
  
  The number of PSVR2 ratings is also difficult to compare, as for the first three months, the HMD was only available directly from Sony. So Amazon missed pre-orders and the initial rush of sales to enthusiasts, the ratings only cover the following five months. I also have no idea how many would order a Quest 3 directly from Meta instead of Amazon, or how easy it is currently to find/purchase at local retailers.
  - Dragon Marble
    
    Even Quest 2 sold 3 times as PSVR2 in the past month.
    - Christian Schildwaechter
      
      – Meta Quest 3 128GB: 20K+
      – Meta Quest 3 512GB: 10K+
      – Meta Quest 2 128GB: 9K+
      – Meta Quest 2 256GB: 4K+
      – PSVR 2: 800+
      – PSVR 2 HCotM Bundle: 700+
      
      I never looked at the Amazon numbers, quite interesting. Incomplete, as Quest 2 is also sold in some bundles, so there should be more than 13K Quest 2 vs. 1.5K PSVR 2. The numbers could also be skewed by e.g. more enthusiasts buying from Meta, or new users from retail. The ~2:1 ratio between the low/high storage model of both Quest 2 and 3 is interesting nonetheless.
      
      The Quest 3 only selling 2.3x the numbers of Quest 2 is most likely due to it not selling for a whole month yet, that number should be higher. With ~20mn Quest 2 since 2020 and 80% US market share, Meta sold ~555K total/~444K in the US per month. So unless Amazon only sells 7% of all US Quest, 30K Quest at launch 3 would be rather low.
      - Dragon Marble
        
        I was more surprised by Quest 2’s staying power than anything else: 13K vs PS5’s 20K. That’s last generation VR headset vs current gen mainstream console that just came out of supply shortages.
      - Christian Schildwaechter
        
        I suspect a current push due to a halo effect from the Quest 3 launch. That triggered a lot of new articles about VR, and reminded a number of people that VR even exists. Some of those will then have decided to first try the USD 300 Quest 2 instead of paying USD 500 for the improved model, and for someone not already into VR, the Amazon product pages for Quest 2 and 3 look very similar.
        
        The Quest 3 page contains a table comparing Quest 2, 3 and Pro, but the main difference is “Mixed Reality (including Virtual Reality)” without really explaining what MR is, and some very similar looking specs (~2000^2 pixels, XR2 Gen 1 or 2).
        
        The MR promotion pictures also look just like all the VR ads from the last few years, pasting the user inside a room with virtual objects. I seriously doubt that many realize that this is now actually somewhat realistic, and not just photoshopped like before. On top of that, the ratings for Quest 2 are at 4.7, while Quest 3 currently only gets 4.0, though this can only have happened after Quest 3 actually shipped, so not that important for the last month.
      - User_Name_24601
        
        Question, how do you find these numbers? Is there an aggregation on Amazon’s website or did you pull them by hand?
      - Christian Schildwaechter
        
        I took them directly from Amazon, and just trusted them to be somewhat accurate. If you search for e.g. “Meta Quest 3 512”, the returned list contains “10K+ bought in past month” in the product list item, below the ratings. The display isn’t consistent, it worked for the Quest models, but for PSVR 2, I had to call the product page and select the offered bundles, again resulting in a number of units sold below the ratings. The same didn’t work with bundles for Quest 2 for some reason.
      - User_Name_24601
        
        Gotcha, thanks. Appreciate the response and the explanation of your workflow. I’m going to need to be pulling similar numbers for a research paper going forward, so I was happy to stumble across your comment.
      - Christian Schildwaechter
        
        With the complete lack of official numbers, we are doing a lot of extrapolation from other data sources like the Steam hardware survey, correlating the number of monthly new ratings on the Quest store with sales, or calculating average monthly revenue from too few data points. That’s better than just guessing, but I hope that nobody asks you to provide a secondary data source, as the results vary a lot, and then combining them doesn’t exactly improve accuracy. One main conclusion is often that they would tell us if the numbers looked good, so they probably don’t.
- Arno van Wingerde
  
  Yes but most of those sales are likely Q2 enthusiasts that bought the thing ASAP, witness the better sales of the 512 GB model in spite of the ridiculous markup. It will be interesting what happens in Q4 and Q1 of 2024. I hope it can get the attention the hardware deserves. Also, without a decent Q3 userbase, games will not be updated to utilize the Q3 advantages…
  - ViRGiN
    
    It’s ridiculous to call it ridicuolous markup.
    
    It’s 150 euros more expensive. They include 6 months of Q+ subscription, which at 9 euro a month totals to 54 euros, making it 96 euros with added value.
    
    Companies has been charging whatever they want for far too long to call it ridiculous, and customers accepted that.
    
    Steam Deck dock, which is basically a USB hub costs 99 euros. Valve also charges extra for extended storage for the Deck.
    
    Apple does it. Samsung does it. HTC doesn’t even give you options.
    Pico basically charges even more from 128 to 256 jump.
    
    Why is it always Meta that has to sell hardware at BOM cost? And when they actually do, they are accused of all sort of stuff, blabla something about competition?
    - Arno van Wingerde
      
      Ah no! Meta is not particularly worse than the others – those are ridiculous too!
      However, the €150 markup is more notable on a €500 thingy then on a €2000 laptop. And as was discussed before – I believe by Christian – it makes business sense to offer the cheapest model even cheaper and get some money back from people who want more.
Christian Schildwaechter

In addition to the 3rd quarter usually being the worst for MRL, Quest 2 selling best during the holiday season, and already having being a popular Christmas gift in 2020, 2021 and 2022, this was the first regular autumn after several years of chip shortages. So in 2023 Quest 2 had to more directly compete for gamers’ attention with PS5 and Xbox Series X, which were mostly sold out/very expensive the years before, while the Quest was readily available.

And even worse, it had to compete with Quest 3. Quest 2 was announced at the end of the 3rd quarter 2020, about a month before it went on sale. Quest 3 was announced 2023-06-01, four months earlier. So everybody considering to buy a Quest 2 during the 3rd quarter already knew that a much more powerful successor would be released soon. Given the age/cycle/competition/successor issues, it was kind of inevitable that Q3/23 would become MRL’s lowest revenue quarter.

Increased loss in all of the 4th quarters is partly due to holiday season ad campaigns, to get Quest 2 onto wishlists. Otherwise loss should be mostly independent from revenue, as much of it is research and development costs. Q4/23 revenue will be interesting, as numbers will be even more inflated than Q4/22, when the Quest 2 sold for 1/3rd more than 20/21. Quest 3 unit sales similar to the 2020 Quest 2 launch would cause revenue to be 67% higher than 2020, but comparing them directly will be hard due to the Quest 2 still being sold in parallel.
- VrSLut
  
  Looks like most that money has been spent on Seattle crack whores! The only real work they’ve done is putting SLAM into mobile hardware.
- Arno van Wingerde
  
  Still, it is worrying to see that income across 2023 is lower in each quarter against the same quarter in 2022, whereas costs are higher against each quarter in 2022. If sales of the Q3 are disappointing, which would be my expectation given the near total absence of new games that use the superior power, the future does not look good…
  Amazing that the main games are not finished yet would this not come too late for the holiday season? I hope the Q3 lite will make a splash next year with enough Q3 games…
  - Hussain X
    
    “Near total absence of new games that use the superior power”.
    
    I’m struggling to find time to go through older games that now are updated to use the Quest 3’s superior power. By the unlikely event I do, already more will have come out. Plus games that don’t get specifically updated for it will benefit anyway by running more smoothly and looking a lot better.
    
    I try to make sure the devs who have already given us great games get further sales and also that I play their games too. But I struggle as too much great VR content out now. The future does not look good for me in the sense that I will get further overwhelmed with more great VR content that I will never get chance to purchase/play some that are already out that I really wanted to (all games already in my library will of course get played).
    - Rogue Transfer
      
      Most users don’t replay games they’ve either already finished or moved on from. Having some extra window dressing in visuals of a game played out, or running more smoothly wont retain people much.
      
      It’ll need a constant stream of enough high quality, deeper games previously unplayed to keep interest. Right now, there are a couple on the horizon that look like they meet some of that(AC Nexus & Asgard’s Wrath II), but we’ll need to wait for how they are received. They aren’t exactly suited for the main demographic that uses Quests, young children; and still have pretty bad looking visuals compared to contempory quality of video games, which means they aren’t likely to draw in new users with higher quality demands.
      
      Stil, two such games or even a few more won’t be enough to sustain people. But, on the plus side, there will soon be over 500 Unreal Engine-based games brought into VR with 6DOF motion controller & roomscale support, via the free UE VR Injector launching in the next two months. That will provide an unending stream of much higher quality content(since it supports nearly all UE4 & 5 games), providing you have a powerful PC.
      - ViRGiN
        
        you are just a praydog shill and propagandist. trust me, nobody gives a shit about these fake vr games other than you guys, completly burned out pcvr elitists who blame valve not being dominant force in vr cause of meta quest. move on from vr rather than shilling for 3DTVR games.
  - MeowMix
    
    I wonder how much store credit (via referrals) plays into the store revenue. By law they wouldn’t be able to count that as revenue (or else they’re cooking the books).
XRC

It’s not all doom and gloom… according to The Guardian:

“Meta earnings report reveals most profitable quarter in years

Company reports third-quarter revenue of $34.15bn, beating expected $33.56bn, and shares jumped in after-hours trading”
ViRGiN

Tell me something new.
It’s been to known to stay longer this for years to come.

Meanwhile steamvr 2.0 left “beta” title, while still being a complete prealpha will zero features other than deck like gui.

Also nofio dropped a new update for their wireless index adapter, and obviously it’s not closer to release than it was half a year ago. That is a worthy article to write about yet another kickscam.

Not to mention nobody has ever received Palmer luckey ready rift one audio fix he announced years ago and took personal data from thousands of people.

Please stop being toxic positive page. You only seem to lash out on Meta cause your experienced pc friends are incapable of handling Quest.
- Arno van Wingerde
  
  Well, I think Ben did not come up with these numbers himself… The picture looks pretty bleak and it is absolutely no help that others are screwing up as well. You might think that for that money Quest3 could have been launched with a game or two? In time for the holiday season perhaps? I hope the AW2 and AC are huge hits that can generate enthusiasm for the season…
  - ViRGiN
    
    Does it really make sense to delay hardware that is ready?
    Software development follows it’s own pace…
    
    Meta wasn’t banking their future on Quest 3, and won’t be banking it on Quest 4 either.
    
    Delayed games are pretty much industry standards nowadays, no matter the studio size.
    
    Also, for “that money”, for me it wasn’t prohibitly expensive. It’s still half the price at least of pretty much everything else. There are enough people out there simply wanting to replace Quest 2 even if it doesn’t really do anything new yet. Better performance, massively improved lenses, higher resolution – people always want improvements, even for their existing games. Those who are holding off because there is nothing new, will pick it up after games are out, and Meta knows about it. There is no choice really. If anyone is ever going to upgrade their headset, it’s going to be Meta Quest 3, since nobody else is doing anything at all.
    
    AC seems to tick most of the boxes of being a “proper” game.
    - Arno van Wingerde
      
      I am still holding off on a Quest3 for now, though my finger was near the “buy now” button and I do not expect to be able to resist much longer. But with prescription lenses at my strength, a BOBOVR strap and a game or two I will be spending close to €1000 or so… that is real money, for better performance etc. Yes, i can afford it, but can also buy a new … For instance, the costs getting in the direction of a PSVR2+PS5 (to be fair need lenses for that as well, plus accessories like a cable system and each game is about €70).
      The Pico5 max could prove attractive hardware if the 4K OLED screens pan out and everything actually works… and if they get decent games themselves, for now they are behind Meta.
      The Q3 lite is probably not going to be my thing, depending on what they sacrifice, but who knows, if it is mainly the controllers and I can use my Q2 controllers…
      - ViRGiN
        
        Maybe the cost is nearing ps5psvr2 if you need all that stuff, but I’m surely getting my money worth out of q3 for the next 3 years. Psvr2 is as unattractive as it gets – basically no games that aren’t on quest, and the headset itself is tethered and no audio.
      - Arno van Wingerde
        
        Well, I gave in to mystificatie and ordered the Q3.
        
        I Hope the existent Games will get updates to close part of the quality gap to PSVR2/PCVR: RM2 seems to show it can be done! Of course Sony has a few exclusives, Horizon RE and GT7, also No man Sky Sure, only 3 exclusives games, but games that blow everything for Quest out of the water.
        I hope the upcoming Quest games will prove as good, but Horizon alone makes me consider getting a PS5+PSVR2.
      - Rogue Transfer
        
        Similarly, Quest 3 is as unattractive as it gets – basically no games that aren’t on Quest 2, and the headset itself has a shorter battery life, still uncomfortable for many after a short time and nearly twice the price or more with often, really required accessories, like an additional battery elite strap.
        
        The Quest 3’s hardware specs are soon to be outdated in terms of performance & resolution by Spring, with Qualcomm just announcing a new XR3 chipset to be used by Samsung and LG’s upcoming MR headsets; with Samsung’s headset expected to be using above 3000×3000 per eye.
        
        Really, the Quest 3 is not going to hold up well over the next 3 years(even the next 6 months!), as its technology isn’t up to the job(e.g. passthrough quality is poor, depth sensor is very low resolution for MR). Even Meta are moving on quickly to newer headsets planned for next year. It’s a repeat of the Quest 1 & Quest Pro.
      - ViRGiN
        
        Ok bud, we know you love your valve index
ApocalypseShadow

This is why reporting revenue don’t mean squat. You can make money and still be taking heavy losses. Every time they report that games on the store made this revenue or that, it means absolutely nothing to me. Give us some context. Aww

I’ve said this before. Did they make a profit? Did the developers make a profit? As we see from Facebook, sure, they are bringing in revenue. But they are taking heavy losses.

Don’t believe the hype until you see the final final numbers.
- shadow9d9
  
  Apple is not going for the gaming segment. Different market at the moment.
  
  Microsoft didn’t fold after Xbox was unsuccessful. That took a long time.
  - ApocalypseShadow
    
    Apple isn’t going for the gaming sector. But Facebook is going for the “we are a lower priced Vision Pro.” All the moves they have made recently point to that. They want to own the AR sector before Apple does. They want a multi use product that competes with Apple since Apple is looking for the next thing beyond the cellphone. Apple already has a phone with tons of apps. They are porting that to Vision Pro.
    
    VR for Facebook is just a side show. Just like gaming is a side show for Microsoft. Microsoft doesn’t care about games. They haven’t created any new IPS in years. They only care about subscriptions and services while pushing the cloud which is piggybacking off of Azure servers. It isn’t their gaming sector that’s making money. It’s their Windows sector. That 70 billion they used to buy game publishers didn’t come from gaming. It was from Windows. Xbox is a loss leader. Microsoft just wants to control the gaming sector then decide who gets what and at what cost. Without Windows, Xbox would have been done years ago. It’s propped up by Windows money. Just like game pass isn’t making money. Making multi million dollar games, then giving them away in a service for cheap isn’t profitable. Companies like Rockstar would never release day one on game pass and lose millions in the process.
    
    Facebook is willing to lose billions, already sitting around 50 billion in losses in the meta verse, to control the AR and VR sector. That amount is larger than most corporations. No company known up until now would take those losses without executive heads rolling. But if they can control the market, then it would have been worth it. But the losses are real. Can’t be denied. Posting revenue without context is misleading.
MeowMix

“More than 50% of Reality Labs spending is on the research and development of AR glasses.”

Via UploadVR

Key context, it’s not all about Quest and VR
- nullcodes
  
  I am really not seeing how it takes 3.74 billion to design a VR headset. How much did Bigscreen Beyond or Varjo spend?
Andrew Jakobs

Makes sense, people waited for the Q3 before making a decision to buy a new headset.
- Jonathan Winters III
  
  Yup. Anything for a clickbait headline to get views, I guess.
TalonOne

Does anyone else think ‘discoverability’ in the Meta Quest App store stinks? For example, they have terribly named categories like ‘Retro Revival”… That’s all well and good, but where can I EASILY find multiplayer games?!?! Or stuff like Apex Construct? That was a great game! Where are the SINGLE PLAYER STORY BASED GAMES? Where’s that category? If Meta did a better job at letting people know stuff existed they’d have a lot more cash coming in! Who’s in charge of that? Fire them! It’s been hard to find games since day 1!
Jonathan Winters III

Why even post this fear-mongering “news”? It’s a no-brainer that revenue would be low due to a new headset imminent – duh!
eadVrim

Quest 3 is a masterpiece of technology, I guess revenues will increase over time.
ViRGiNCRUSHER

You have to make games people wanna play and I mean full featured games!
Charles U. Farley

And this guy is a Meta shill.
Walter Sharrow

I hate these tech company monopolies. I hate them stealing/selling our information, their tampering with our culture and politics, how they pit us against each other for their profits.. but….

THANK GOD FACEBOOK CAN AFFORD THE QUEST 3!

Seriously, other then Google (which has zero attention span for pet projects), who else could have kept releasing such amazing headsets for such reasonable prices? Zuckerberg’s dedication to this pet project is impressive, especially in the face of how much it’s costing the company.
nullcodes

Where on Earth did the 3.74 billion dollars go?? It is sure as hell not in the Quest 3. What did they do with the money??