Meta’s Zuckerberg plans 30% budget cut to metaverse unit, potentially triggering January layoffs: sources

[SAN FRANCISCO] Meta Platforms’ Mark Zuckerberg is expected to meaningfully cut resources for building the so-called metaverse, an effort that he once framed as the future of the company and the reason for changing its name from Facebook.

Executives are considering potential budget cuts as high as 30 per cent for the metaverse group next year, which includes the virtual worlds product Meta Horizon Worlds and its Quest virtual reality unit, according to people familiar with the talks, who asked not to be named while discussing private company plans. Cuts that high would most likely include layoffs as early as January, according to the people, though a final decision has not yet been made.

The proposed metaverse cuts are part of the company’s annual budget planning for 2026, which included a series of meetings at Zuckerberg’s compound in Hawaii last month, the people said.

Zuckerberg has asked Meta executives to look for 10 per cent cuts across the board, which has been the standard request during similar budget cycles the past few years, they added.

The metaverse group was asked to cut deeper this year given that Meta has not seen the level of industry-wide competition over the technology that it once expected, they said. The majority of the proposed cuts are likely to hit Meta’s virtual reality group, which makes up the bulk of metaverse-related spend, the people said. Cuts would also target Horizon Worlds.

The entire metaverse effort has drawn scrutiny from investors, who have seen it as a drain on resources, as well as from watchdogs, who have alleged that children’s privacy and safety have been compromised in the virtual worlds. Shares of Meta jumped 5.5 per cent in premarket trading in New York following Bloomberg’s report.

A spokesperson for Meta declined to comment.

Meta’s vision for the metaverse has not taken off despite Zuckerberg’s conviction, which he still has, that people will one day work and play in virtual worlds. In 2021, as Facebook was facing fallout for user safety and privacy issues, Zuckerberg rebranded the whole company around the idea of the metaverse and started spending heavily on the vision.

The metaverse group sits within Reality Labs, the Meta division focused on long-term bets like VR headsets and AR glasses. That group has lost more than US$70 billion since the start of 2021.

Zuckerberg has largely stopped mentioning the metaverse in public and on company earnings calls, and is instead focused on developing the large AI models that underpin AI chatbots and other generative AI products, as well as the hardware products that are more linked to those experiences, like Meta’s Ray-Ban smart display glasses.

Some analysts and investors have long advocated that Zuckerberg rid himself of Reality Labs products that continue to drain resources without providing much revenue in return.

In April, Mike Proulx, a vice-president at research and advisory firm Forrester, predicted that Meta would “shutter its metaverse projects, like Horizon Worlds” before the end of the year.

Meta’s “Reality Labs division continues to be a leaky bucket,” he said in an email at the time, pointing to the unit’s losses. Shuttering metaverse efforts, Proulx said, “would allow the company to give more focus to its AI projects including Llama, Meta AI, and AI glasses.”

Meta is still committed to building consumer hardware, and recently hired Apple Inc.’s top design executive to help. BLOOMBERG