Little Meta’s Virtual Reality Business Reality Labs made their debut last year

During the peak of the pandemic tech stock bubble in late 2021, Facebook (also the parent company of Instagram and WhatsApp) announced its renaming to Meta. Its new business unit — Meta Platforms (META 0.03%) — has had a terrible 2022, and its newfound commitment to building a “metaverse” business is largely to blame. The stock has staged an impressive rally over the past few months, but as of this writing remains 50% below its all-time high.

Meta CEO Mark Zuckerberg has changed his mind about the Metaverse lately, and with good reason. Despite the overall company name change, the Metaverse business — currently listed under the “Reality Labs” position — is an almost insignificant portion of the company’s overall revenue. Here’s how little it brought in last year.

A tiny segment that eats up money

Meta had $32.17 billion in revenue for the fourth quarter (October to December) of 2022. Of that, $31.25 billion — or 97.1% — was ad revenue generated by Meta’s core social media apps (Facebook, Instagram, and WhatsApp). As you can see in the chart below, Reality Labs (virtual reality headsets and software sales, together the company’s bet on the Metaverse) was a marginal contributor to revenue. It brought in just $727 million, or 2.3% of sales.

$184 million was filed under “Other,” most of which related to WhatsApp business messaging services and other software revenue generated from its social media apps.

Data source: Meta.

The key takeaway here, though, is how tiny Reality Labs is right now. For all the hype, this is an almost insignificant part of Meta’s business. In fact, the segment brought in 17% less money in Q4 2022 compared to Q4 2021, driven by strong consumer spending on the Quest 2 affordable virtual reality headset in 2021. Sales of this headset have since cooled, and the newer version of Meta (Meta Quest Pro) is a more premium piece of hardware priced at $1,500.

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To make matters worse, Reality Labs also reports high losses. Reality Labs reported an operating loss (profit or loss after paying for business expenses such as payroll, research and development, and marketing) in Q4 of $4.28 billion. Subtracting Reality Labs, Meta’s operating profit margin jumps from 19.9% ​​(decent) to 34% (very lucrative).

Meta Financial Metric

Total meta business

Meta without Reality Labs


$32.17 billion

$31.44 billion

operating result

$6.4 billion

$10.68 billion

operating profit margin



Data source: Meta.

In other words, closing Reality Labs would reduce Meta’s revenue by just 2% but increase operating profit by almost 70%.

Investors cheer the “Year of Efficiency”

Given the strain the Metaverse currently has on Meta, investors are cheering Zuckerberg, calling 2023 the “Year of Efficiency.” Cost-cutting is underway at the company, including at Reality Labs, meaning profit margins could see a sizeable recovery. Meta stock is up 45% so far in 2023.

As of this writing, shares are now trading at 20 times trailing 12-month earnings, or 24 times free cash flow. After the big rally, I rate the meta stock as a hold. I’m awaiting more information on cost reduction advances before considering buying more.

Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, is a member of The Motley Fool’s board of directors. Nicholas Rossolillo and his clients hold positions at Meta Platforms. The Motley Fool has positions in and recommends meta platforms. The Motley Fool has a disclosure policy.