Meta’s latest quarterly results show its Reality Labs XR division is again reporting an operating loss just south of $4 billion. Now, for its Q2 2023 results, the company says Reality Labs’ revenue was down by 39% due to lower Quest 2 sales, making for the worst quarterly performance in the past two years.

Meta has been clear about its plan to spend aggressively on XR over the next several years, so it’s again no surprise we’re seeing operating budgets in the billions with only a fraction of that coming back in via Quest 2 hardware and software sales.

In fact, Quest 2 sales play such an important role in Reality Labs’ quarterly performance that Meta has reported $276 million in revenue in Q2 2023, or 39% lower than last quarter.

Image created using data courtesy Meta

Meta reported that Reality Labs expenses were $4 billion, which was up 23% since the same period last year. The company says this was due to lapping a reduction in Reality Labs loss reserves and growth in employee-related costs, bringing the XR division’s operating loss to $3.7 billion for Q2 2023.

Meta says it expects continued operating losses in the future, saying losses will likely “increase meaningfully year-over-year due to our ongoing product development efforts in AR/VR and our investments to further scale our ecosystem.”

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Meanwhile, the company is preparing to launch Quest 3 in late 2023, the $500 follow-up headset that integrates many of Quest Pro’s mixed reality capabilities. Meta’s $1,000 Quest Pro has also reportedly been discontinued, however (without substantiating that particular claim) Meta CTO Andrew Bosworth implied earlier this month that a Quest Pro 2 isn’t off the table.

Apple’s Vision Pro is also looming, set to launch sometime next year. As rising tides lift all boats, hype around Vision Pro could actually benefit Meta in the short term. Apple’s $3,500 XR headset has attracted new attention to the space, however Meta’s consumer-friendly pricing and extensive game catalogue for Quest 3 may be well positioned this holiday to capitalize on that Apple-adjacent cachet.

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Well before the first modern XR products hit the market, Scott recognized the potential of the technology and set out to understand and document its growth. He has been professionally reporting on the space for nearly a decade as Editor at Road to VR, authoring more than 3,500 articles on the topic. Scott brings that seasoned insight to his reporting from major industry events across the globe.
  • I know these Apple nitwits would buy a rock with an Apple logo on it (it’d be Apple’s first product in years with a shelf-life over 2 years), but this $3500 paperweight is going to break most of them. With affordable, high-quality VR available now and people still slow to adopt, that controllerless headset isn’t going anywhere, logo or not. What are they going to do with it because show off to their friends? Most of them will do little more then sit around like a trophy for the rich and gullible.

    But really, who isn’t waiting for the Quest 3? Lighter, faster, better in all ways. It took 1 year for the Quest 2 to eclipse the Quest 1. It’s LONG past time for the Quest 3. You’d be a fool to buy a Quest 2 with the 3 so close.

    Although… if you have the money, the Quest Pro is looking better everyday. It has the LONG overlooked Eye Tracking the 3 should have had. And the price is inching it’s way into the “Acceptable” range. Most of it’s launch bugs are gone and I haven’t seen any Quest 2 games that wouldn’t run on it. I’d like to get one just to experiment with developing for eye tracking. It’s quite the beast!

    • Kevin Brook

      I agree regarding Quest Pro, it’s developed into an incredibly good gaming headset now, especially PCVR. I will buy a Quest 3, but only because I have bought every Oculus/Meta headset, but Quest 3 is inferior to Quest Pro in every way that matters to me.

      Dual QLED displays, local dimming, open interfaceless design, self tracked controllers, couter rotated dual panels for better horizontal FOV, face and eye tracking, the charging dock, better build quality and much better aesthetics.

      I hope they announce a follow up for next year at Connect in October as I don’t want a Quest 3, I really want a Quest Pro 2 with the new chip, depth sensor, and higher resolution displays.

      • Bob

        Quest Pro is an excellent device which I mentioned before in another article. It needed to come with front-to-back strap to alleviate the comfort problem, and that would have been enough to propel it into one of the best PCVR headsets available to purchase.

        One more thing I would have liked was for the user to be able to shift/rotate the angle of the visor region in order to maximize FOV because you lose quite a lot of FOV by not being able to do this. The entire headset is a static piece of hardware – nothing can be rotated/shifted up or down.

        A mechanism to move just the lenses closer to the eyes (like the Valve Index) would have also complemented this approach.

      • The announce Quest 4 at MC2, that instant cuts Quest 3 sales in half.
        At the very least.

    • Bob

      “You’d be a fool to buy a Quest 2 with the 3 so close.”

      Unfortunately, there are millions out there who do not pay attention to the progression of technology in tech related websites i.e. the masses. So yes, there will be many, many, many who will fall into the trap of buying “last season’s” tech whilst generally being oblivious to the imminent release of the next-gen product.

      Most people simply don’t care enough about XR to give a damn about what’s coming next. Only what is available now.

    • sebrk

      I will bet you that the Vision Pro will be sold out and resold for a higher price still.

      It’s so utterly stupid to imply that Apples success is due to some magic spell or fanboyism with a history of consistent product success.

      • shadow9d9

        Considering they keep lowering the amount they will be able to sell, eventually it will sell out.

        • sebrk

          That was due to component shortages. Makes sense seeing the cutting edge hardware in the device.

    • Andrew Jakobs

      Yeah, the q3 is better, but also $200 more expensive. Not everybody has the budget for a Quest 3.

      • sfmike

        Not everyone has the budget for dinner. I don’t see your point.

        • Andrew Jakobs

          Because he said “you’d be a fool to buy a Q2 with the Q3 so close”, but you aren’t a fool if you do. You may just not have enough money to buy the Q3. If they were around the same pricerange I would agree, but $200 is a big difference at that price point. When we’re talking about $3500 or $3700 it wouldn’t be that much of a difference but 299 or 499 is, that’s almost double the price.

          • ViRGiN

            Lmao, in both cases it’s $200 difference. Simple mathematics are clearly too complex for you.

          • So?
            Just continue saving-up until you have the $200.

          • Andrew Jakobs

            If you already have trouble saving-up fir the $299, $200 extra isn’t easy. These things are meant for mainstream, so also for people who don’t have easily access to extra money. But hee, why nit save up some extra $3100 so you can buy the Apple Vision Pro, it isn’t much extra.

          • shadow9d9

            Then you can’t afford it..it is as simple as that.’

            $200 vs $3300 more. When you have to resort to a preposterous argument, you must realize that you have none.

          • Andrew Jakobs

            Why? What’s the difference between $200 or $3300? Or what’s the difference between $299 or $499? It all differs from the persective you come from. For you $200 extra might not be much, but for others it might just as well be $3300. Never underestimate that a little bit more can be a huge difference for others.

          • shadow9d9

            Buying 3 year old hardware that will have support dropped sooner than later is a bad investment, whether you can afford more or not. Better to save up longer for something vastly superior and relevant.

          • Andrew Jakobs

            Again, not everybody can afford it. Why do people still buy a console if the next generation is just released? Because they want to play but can’t afford the new ones.

          • Christian Schildwaechter

            It’s not just that people can’t afford it. Some objectively will have no reason to pay an extra 2/3 on top of the price of a Quest 2. Should somebody that only plays Beat Saber on a Quest 1, doesn’t buy new music packs and is fine with the comfort upgrade to a Quest 2 or 3, or should they have gone for a PCVR setup with an Index years ago? No, if the base model works for them, paying more money for a slightly better, but not fundamentally different experience would basically be wasted money, even if they could afford it.

            That pretty much true for all other areas too: some have actual need for a better/faster phone, laptop, car, whatever, some will buy a new generation just because they want it or value the extra comfort and can afford it, but most will require a real benefit and use case before investing into the higher end/much more expensive model, and otherwise keep their money. They’ll get the cheaper version that will do just fine for most cases, and upgrade only if technical reasons force them too. And with the Quest 2 still being sold after the release of the Quest 3, and developers targeting the large existing market of Quest 2 HMDs, it will be quite some time before a lack of new releases will force Quest 2 users to finally get new hardware.

            Andrew Bosworth 2021:

            For those who are curious, Quest 2 is going to be in the market for a while – for a long while, and it’s gonna be, you know, I think the best bet for the most accessible way to get into VR and have a great experience.

          • Christian Schildwaechter

            Buying any VR hardware is a bad investment if the average user stops using it after a couple of month, you end up with a rather high hourly rate. Game consoles have much higher retention rates, so purely by going how long something will be supported and used, better pick a PS5 instead of a Quest 2 or 3.

            The problem here is that VR enthusiasts evaluate the price and benefits of the Quest 3 from a specific perspective: they know that the limited performance held back what’s possible in games on the Quest 2, they already know that they like the medium, they usually already have invested into a lot of software, so they may almost immediately benefit from a new headset.

            So for an enthusiast buying 3 year old hardware would indeed be a bad investment. The same isn’t necessarily true for someone new to VR. They don’t know whether they will like the experience, they may end up playing only Beat Saber or Gorilla Tag or Golf+, all of which will run fine on the Quest 2. They may end up using it for six months and then lose interest, or even less. They may find out they can’t handle motion with sticks and hate teleporting.

            All these make the long term support rather unimportant, and spending 67% more on a Quest 3 mostly a wast of money, esp. since at the beginning there will be basically no titles that really utilize the extra power. Just like with the Quest 2 we will see developers targeting the lower performing Quest 1 for a long time and only some offering improvements for the faster Quest.

            With the Quest 3 it will be even worth, as there are now 20mn+ Quest 2 out there and the Quest 3 will not replace the Quest 2 as the Quest 2 did with the Quest 1, instead both will be sold in parallel. This keeps the Quest 2 the base model developers will target and the Quest 3 the enthusiast version that will sell in smaller numbers, esp. around Christmas, because USD 299 is a much more giftable price than USD 499. And we know that Quest sales go way up during the holiday season and that’s how we ended up with a Quest user base where US teens are the vast majority.

            Enthusiasts would of course go for the technically better Quest 3 at the higher price. They are a loud, but small minority. Meta knows that, at previous Connects they talked a lot about how important it is to keep the price below the USD 300 impulse buy threshold, and how the perceived price impacted sales on their previous VR projects Gear VR, Go and Quest 1. Most people not already into VR can in no way evaluate what impact an XR2 Gen 2 will have over an XR2 Gen 1, these people will go by the look of the games, which will superficially be pretty much the same for both Quest 2 and 3 for a long time, and the price. Which is why I’m pretty sure that next Christmas, the Quest 2 will outsell the Quest 3.

  • gothicvillas

    I guess Quest 3 Pro will have eye tracking

    • xyzs

      Well, Quest Pro (1) already does… so, not taking any risk saying of course.

  • eadVrim

    I got this error message [object Object] in the PC Chrome browser.

  • xyzs

    I don’t like Zuck and Meta particularly, but I would like to see that VR is more viable for them though.

    • Dragon Marble

      Their RnD expenses are mostly from AR, not VR. They build many prototypes. The consumer products we see today are just the tip of the iceberg.

      My belief — which has been disputed on this forum — is that if they decided to settle down on building the Quest line into a gaming console, and just kept making marginal improvements generation after generation, they could make Quest platform profitable today.

      • xyzs

        That would be lots of bilions to make AR prototypes nobody ever saw yet.
        I get it’s expensive but we are talking bilions per trimester here. They make them out of pure platinum by thousand and crafted in space or what?
        If I was Mark, I would double check the accounts.

        • Dragon Marble

          I can’t fathom it either. That’s the difference between Mark and you and me.

        • Burt Reynolds

          Exactly. You could have bought 50 F-35 fighters for what they spent in opex last quarter.

    • shadow9d9

      Research is just money spent, not gained. That is why. And your analysis of how rnd works is laughable.

      • xyzs

        Whatever you say virgin second account..

    • Christian Schildwaechter

      FRL/MRL at on time had 10,000 employees, incl. researchers, engineers, developers, managers etc. If on average they make (only) USD 100,000 a year, that’s USD 1bn alone. For business costs you usually have to double the cost of the salaries for extras like office space, travel costs, infrastructure, benefits, health and retirement plans etc., bringing us to USD 2bn. Costs like paying third party’s to produce rather expensive prototypes of neural chips, new types of optics or testing equipments in specialized manufacturing facilities go on top.

      I of course don’t know what exactly they pay for and therefore where exactly the huge losses come from, or what those 10,000 people were actually doing. But running an operation of that size, stacked with highly sought-after technical personnel will easily drive the costs up into billions, even if all they do is drink coffee and play Minesweeper or Gorilla Tag all day.

  • david vincent

    @RoadToVR it would be nice to review the DPVR E4
    It has the same screen as Quest 2, but without the muddy graphics (thanks to the display port).
    It may be the best headset for simmers…

  • Rosko

    because it is shit. VR is awesome but not delivered on a half backed potato mobile phone.

    • ViRGiN

      Vr will never deliver backed by PC.

      • VrSLuT

        Butt your revenue is leaking out that other valve!

        • ViRGiN

          Nah, nobody is buying SteamVR games.

  • XRC

    Whatever is happening in reality labs, Meta is currently performing very well for stockholders.

    From business results posted on Wednesday:-

    “Meta saw its revenue climbing to almost $32 billion for the three months ending June 30, which was an 11% increase from $28.8 billion the same period of last year, according to its financial results statement released late Wednesday.”

    “Net income increased 16% to approximately $7.8 billion, from $6.7 billion, during the same period.

    “We continue to see strong engagement across our apps and we have the most exciting roadmap I’ve seen in a while with Llama 2, Threads, Reels, new AI products in the pipeline, and the launch of Quest 3 this fall,” Meta Founder and CEO Mark Zuckerberg said in the statement.”

    • kool

      You called ai and threads and….ads

  • I still think that Meta is wasting a lot of money. I mean, they need to spend billions to dominate this sector, but I think they are spending more than they should because of lack of efficiency

    • Mat Pawluczuk

      That was one of Carmack’s gripes during his time as their CTO

  • ApocalypseShadow

    Losing money again and again. Lack of focus can get you that. Lack of in-house productivity and game development can do that. And now, they’ll chase Apple and try to offer that same thing for less. See, Apple knows what they want. The next paradigm beyond the cellphone. Zuck is just throwing crap at the wall going something sticks. But cheap indie games aren’t enough to sustain the platform. And subsidizing to kill competition in the stands alone space wasn’t enough either. Casuals are only marginally amused until the headset collected dust. And core gamers want more high quality games. Not something you can finish in 2 hours.

    It’s also funny with gamers looking at Pro as gaming platform. Not for $1000 it isn’t. Lol. And some of these gamers were looking down on PS VR 2 and PS5 as expensive. You get more out of Sony’s combo than an expensive Pro. And no real games take advantage of eye tracking and it lacks power because of being based on Quest. See, when Sony built their console, it’s features are useful for games. The features in PS VR 2 are useful for games. Sony has a better focus.

    Quest 3 might do better. But it’ll be held back by Quest 2 cross development being the lowest common denominator. Xbox Series X knows that quite well with Series S. BC is fine to have. But not when it affects next gen VR game development. Sony won’t have that problem as both consoles are the same power and one headset to worry about.

    • shadow9d9

      Research costs money. That is how it works.

      They bought 8 studios, all making games. The games will continue to come. Whereas there is only silence from Sony in comparison.

      • NL_VR

        Yes its funny, in this current state Sony is worse than Meta in making VR games.

  • Daniel Meyer

    is it a wonder? While Meta does many things right, there are also a lot of fuck ups. Alone the Meta Quest Store… sorry. That is not a way to handle a store. I want a tidy list of new games, upcoming games and so on. Also that i cant delete games i played as a test-version from my personal list is grinding my gears…

  • nejihiashi88

    they deserve what they got changed the name of oculus, required only facebook accounts, over promising and under delivering, low effort support for content and abandoning their products fast

  • Jonathan Winters III

    Why does this VR evangelist news site post a doom and gloom news headline? Bad idea. Sales are down due to Quest 3 coming, as expected.