Meta Platforms' shares experienced a surge following reports that the company is considering significant budget cuts, potentially up to 30%, in its metaverse operations. This potential shift in financial strategy has resonated positively with investors, who have increasingly questioned the substantial spending on metaverse projects without a clear path to profitability.
The possible budget cuts, initially reported by Bloomberg, are expected to heavily impact Meta's virtual reality segment, including Meta Horizon Worlds and the Quest VR unit. These cuts could lead to layoffs as early as January 2026. The decision is tied to Meta's 2026 budget planning, which included discussions at CEO Mark Zuckerberg's retreat in Hawaii last month. While Zuckerberg has requested a general 10% budget cut across the company, deeper reductions are being considered for the metaverse division due to the technology's failure to attract the anticipated level of industry-wide competition.
Meta's increased focus on the metaverse was the driving force behind the company's name change from Facebook in 2021. However, the metaverse division, housed within Reality Labs, has reportedly lost $70 billion since 2021. In the third quarter of 2025 alone, Reality Labs generated $470 million in revenue but reported a net loss of $4.4 billion. This has led some analysts to view the division as a "black hole" for investment.
The news of potential budget cuts has been welcomed by investors, who have expressed concerns about Meta's heavy spending on the metaverse. Meta's stock had suffered in the past month, dropping as much as 22% from its pre-earnings-report level, but the recent report of budget cuts led to a 3.4% increase in share price on Thursday.
Analysts believe that reducing spending on the metaverse could free up resources for Meta to invest in other areas, such as artificial intelligence (AI). Meta has been increasing its investment in AI, growing out Superintelligence Labs, its AI unit. Mizuho analyst Jack Yuan suggested that the cuts could add around $2 of earnings per share to the company's 2026 EPS estimate. Yuan also noted that investor feedback on Meta has been "quite negative" since the company's third-quarter results and recommended that investors increase their positions.
Meta has faced increasing competition from companies like Apple and Microsoft, which have also launched virtual and augmented reality projects. Despite these challenges, Zuckerberg predicted in 2022 that augmented reality glasses would become as widely used as mobile phones. However, the company's virtual reality project has struggled to gain traction with customers, with only 20 million Meta Quest headsets sold since 2019 and only 200,000 active users in Horizon Worlds.
