Meta's AR/VR Division Sees 30% Quarterly Revenue Growth "Driven By Quest Headset Sales"

Meta’s Reality Labs division’s quarterly revenue grew 30% year-over-year in Q1 2024.

Reality Labs is the division of Meta behind Quest headsets, the Ray-Ban Meta smart glasses, and research & development toward AR glasses and their neural wristband input device.

In its Q1 2024 earnings call today Meta reported $440 million Reality Labs quarterly revenue, 30% higher than Q1 2023. Meta CFO Susan Li told investors this record revenue was “driven by Quest headset sales”. However, it’s also 36% lower than Q1 2022 and 18% lower than Q1 2021.

This suggests Quest 3 is continuing to sell well after its launch quarter, which saw Reality Labs’ highest quarterly revenue ever, though isn’t maintaining post-launch sales momentum as well as Quest 2 did (though it does have higher retention).

That’s almost certainly because Quest 3 launched with a $200 higher entry price. Even adjusted for inflation, that’s still $150 higher, putting it in a different price segment than Quest 2.

A leaked Meta hardware roadmap from last year and reports from The Wall Street Journal, Bloomberg, and a Chinese analyst who has been reliable in the past suggest Meta plans to soon launch a cheaper version of Quest 3 to directly replace Quest 2, rumored to be called “Quest 3S” or “Quest 3 Lite”. Meta’s recent actions suggest it’s trying to clear stock of Quest 2 and its official accessories to make way for this new lower priced headset.

This cheaper version of Quest 3 will be crucial for Reality Labs’ prospects of achieving overall yearly growth.

Reality Labs reported $4.29 billion costs in Q1 2024, a minuscule decrease of 1% compared to Q1 2023.

That means Reality Labs made a $3.85 quarterly “loss” in Q1 2024. But while describing this as a loss is technically correct in a financial sense, in reality it’s more accurate to describe most of it as long term investment. XR headsets like Quest are still a relatively early technology, far from maturity, and Meta hasn’t even launched its first AR glasses yet. More than 50% of Reality Labs spending is on the research and development of AR glasses.

Also, Meta managed to decrease quarterly costs by 1% while increasing revenue by 30%, this suggests Reality Labs is slowly progressing on the path to profitability. It might also suggest Quest 3 is less subsidised than Quest 2 was.

As in previous quarters, Susan Li told investors she expects these losses to continue to increase meaningfully over the next year due to “ongoing product development efforts and our investments to further scale our ecosystem”.

Mark Zuckerberg has in the past told investors that he doesn’t expect Reality Labs to be profitable until the 2030s, seeing it as a long-term investment in the future of computing.

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