CEO’s Bet on Threads User Retention Triggers $3.7B Sinkhole in Metaverse Investment

Meta’s recent financial report for the second quarter of 2023 revealed a significant loss of $3.74 billion in its metaverse-related ventures. The company has already poured $7.7 billion into its virtual reality business since the start of the year.

Despite the substantial losses in the metaverse area, Meta reported an 11% increase in revenue compared to the same quarter in the previous year, amounting to a total of $31.9 billion.

Reality Labs, the division responsible for metaverse-focused projects, experienced a concerning decline in revenue, reaching $276 million. This marks the lowest revenue figure for the department in two years, with a staggering drop of nearly 40% compared to Q2 of 2022.

During an earnings call, Susan Li, Meta’s financial chief, attributed the decline in Reality Labs’ revenue to reduced sales of its Quest 2 virtual reality headset. She also pointed out that expenses for the division rose by 23% to $4.0 billion, largely due to increased staffing costs.

Meta anticipates that operating losses in the Reality Labs division will continue to grow throughout 2023. The company cited ongoing investments in metaverse development and VR-related product efforts as the main reasons for the extended losses.

Mark Zuckerberg, Meta’s chief, emphasized the company’s commitment to both artificial intelligence (AI) and the metaverse. He stated that Meta is currently focusing on AI in the short term while keeping a long-term vision for the metaverse. According to Zuckerberg, AI and the metaverse are interconnected and serve as complementary areas of focus.

Zuckerberg also revealed that Meta is actively utilizing its AI model, Llama, to create various products that will facilitate users in crafting virtual worlds, avatars, and objects. Further details about these products will be shared by Meta later in the year.

Following the release of Meta’s financial report, the company’s stock price experienced a boost of over 7% in after-hours trading, reaching around $320 according to Google Finance data. Though Meta’s shares have seen a 140% year-to-date gain, they remain below their all-time high of over $378, achieved in September 2021.

Mark Zuckerberg expressed his enthusiasm for the early success of Threads, Meta’s platform launched on July 6. He mentioned that more users are returning to the platform daily than initially anticipated. Meta is currently prioritizing user retention for Threads, with future plans to focus on growth and eventual monetization.

However, a report from data analytics firm Similarweb on July 26 painted a less optimistic picture for Threads. The report claimed that user numbers for Threads had declined by 60% since its launch. While Threads reached a peak of 49 million daily active users on its Android app on July 7, this number dropped significantly to 12.6 million by July 23. Additionally, users were spending less than five minutes per day on the app during the past week. Similarweb suspected a similar trend for Apple iOS users as well.

In conclusion, Meta’s latest financial report showcases significant losses in its metaverse ventures, while the company continues to explore AI and its potential applications. The success of Threads remains uncertain, with user numbers declining since its launch. Nevertheless, Meta remains optimistic about its long-term vision for both the metaverse and AI.

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