In 2021, Meta Platforms (META 2.38%) was so convinced of the potential in the metaverse that it not only invested heavily in it but also underwent a significant rebranding and changed its name from Facebook to Meta Platforms. Since then, however, the company's Reality Labs division, which focuses on the metaverse, has proven to be not much more than a money pit.
Now that the company appears to be focusing on artificial intelligence (AI), however, the metaverse looks to be less of a priority. Meta has been ramping up spending on AI, and recently, it announced it would be laying off 10% of employees from its Reality Labs business. Could this be the beginning of larger reductions ahead, and could diminishing the Reality Labs segment be a good move for the tech stock?
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Metaverse cuts don't appear to be part of broader changes -- yet
Although Meta is making a sizable reduction to the headcount in its Reality Labs division, the company hasn't given up on the metaverse just yet, according to a report from The New York Times late last year. Instead, it is going to invest the money it saves from the job cuts in its augmented reality glasses.
Rather than making significant wholesale changes to its metaverse business, Meta appears to simply be redirecting investments from one area to another; investors shouldn't brace for more significant changes ahead. While some investors may have preferred the company simply do away with the money-losing segment, this change may at least be a sign that the company is being more cautious with its spending in this area.
NASDAQ: META
Key Data Points
Meta's business is still growing, but excessive spending remains a concern
Meta Platforms has some excellent social media assets in Facebook, WhatsApp, Instagram, and Messenger. Those make up its Family of Apps business, which generates strong profits that make up for losses in its Reality Labs division.
But the company could be much more profitable than it currently is. Ditching the metaverse entirely could mean billions more in income each quarter, which would translate into a more attractive earnings multiple and possibly a higher valuation. In 2025, the Reality Labs division incurred losses totaling $19.2 billion, an 8% increase from the $17.7 billion loss it posted in the previous year. By comparison, the Family of Apps segment generated a profit of $102.5 billion this past year.
Until Meta firmly makes a plan to exit the metaverse entirely, I'd avoid the stock. Not only is the metaverse still a significant part of its business, but with the company also spending heavily on AI, my concern is that the business isn't being run as efficiently as it could be, and there may be more attractive AI stocks to invest in. These recent cuts may not be enough to make the stock a good buy this year.
