How to Lose $4B on the Metaverse and Still Win the Quarter

Meta’s Reality Labs is a money pit - so why are investors still smiling?

There’s a pair of smart glasses sitting in the back of a drawer in my kitchen. 

They were supposed to change everything - email in your eyeline, voice assistants at your command, video calls from your face. Now, they sit next to a defunct USB-C hub and an immersion blender I used once.

Like many others, I got swept up in the metaverse hype. At the time, it felt like the next big thing: a bold new way to work, connect, even exist. But the world moved on. The buzz faded. Investors cooled. Consumers, for the most part, didn’t show up.

Except someone forgot to tell Meta.

Last week, Meta announced quarterly earnings that easily surpassed expectations. The company posted

$42.3 billion in revenue and $6.43 in earnings per share, outperforming Wall Street forecasts on both fronts. Markets reacted with a 5% bump in pre-market trading. Yet buried in the fine print was this nugget: Meta lost $4.2 billion on its Reality Labs division - the group responsible for all things metaverse.

That division has now burned through more than $60 billion since 2020. The return? A few headsets, some middling AR glasses, and a virtual ecosystem that struggles to retain interest, let alone users. It’s a money pit. And yet, investors are unfazed.

So how does a company lose billions on a vision the world has mostly tuned out - and still walk away with a win?

The short answer: by shifting the narrative. These days, Meta isn’t just a metaverse company. It’s an AI company. Or at least, it’s trying very hard to look like one.

Meta’s capital expenditure for 2025 is projected to reach between $64 billion and $72 billion, up from earlier estimates. A significant chunk of that will go toward AI infrastructure, including development of Meta AI - its ChatGPT rival - and Llama, its large language model. Meta says its AI assistant already has nearly a billion monthly users, although the metric is padded by the way the chatbot has been quietly integrated into search functions across Facebook, Instagram, and WhatsApp.

It’s a clever tactic. Embed the tool in places people already use daily, and you don’t need to convince them to try something new. Whether they’re looking up a restaurant or searching for a friend’s post, the AI assistant is there - ready to answer, ready to log a new “interaction.”

Investors have taken the bait. AI has become a golden ticket for public companies looking to justify big spending and even bigger ambitions. And Meta, while not first to market, is moving quickly to catch up. Though it hasn’t directly monetised its AI tools yet, the bet is clear: build usage now, figure out revenue later. It’s the same playbook the company used with social media, and it turned Meta into a $1 trillion business.

Still, the real engine powering Meta’s earnings isn’t AI - not yet. It’s advertising. Last quarter alone, Meta brought in $41.4 billion in ad revenue, beating forecasts once again. That figure matters more than usual in the current economic climate, with uncertainty swirling around potential tariffs, inflation, and shifting consumer habits.

While some analysts worry that proposed trade restrictions could lead to reduced ad spend — particularly from Chinese retailers like Temu and Shein - others see the opposite. In turbulent times, advertisers tend to consolidate budgets around platforms with proven reach and efficiency. Meta owns two of the biggest: Facebook and Instagram. Smaller platforms are more likely to see cuts. Meta may actually benefit from market contraction, at least in the short term.

But while the money’s still flowing, trouble is brewing elsewhere. Meta is in the middle of a major antitrust trial with the U.S. Federal Trade Commission, which is seeking to unwind its acquisitions of Instagram and WhatsApp. The FTC argues that Meta pursued a “buy-or-bury” strategy to eliminate competition and maintain dominance over social networking.

The stakes are high. Reports in the WSJ suggest Mark Zuckerberg offered a $1 billion settlement - a figure the FTC dismissed. Their counteroffer? $18 billion. If the court sides with the regulators, Meta could be forced to spin off its most important properties, fundamentally reshaping the company and its reach.

Behind the scenes, Meta is preparing for that possibility. The company is doubling down on Facebook and Threads, two platforms it still fully controls. If the worst-case scenario materialises, those could become the core of Meta’s rebuilt ecosystem.

All of which brings us back to the metaverse.

Why, despite mounting losses and tepid consumer response, does Meta keep sinking money into a world no one seems desperate to enter? The answer is strategic. In a future where the company might lose its social media dominance, Meta needs to own the next platform - whatever form that takes. Whether it’s AR glasses, immersive VR, or spatial computing, building the foundation now could mean reaping the rewards later.

Apple’s Vision Pro 2 launch is coming. Nvidia is quietly making huge plays in spatial computing. Microsoft, Amazon, Google - all are keeping a toe in the water. Meta doesn’t want to be caught flat-footed if the paradigm shifts again.

And that’s the company’s bet: even if the metaverse flops today, it could be vital tomorrow. Losing billions is a painful investment, but if it secures a role in the next computing era, it’s money well spent.

So yes, Meta lost $4.2 billion on the metaverse this quarter. But with ad dollars still rolling in, AI headlines winning attention, and investors hungry for long-term vision, that loss looks less like failure - and more like insurance.

The glasses in the drawer may not see the future just yet. But Meta’s still betting they will.