Meta's Massive Metaverse Pivot: Zuckerberg Plans 30% Budget Cuts and Potential Layoffs as Company Shifts Focus to AI

Meta CEO Mark Zuckerberg is anticipated to significantly reduce resources allocated to metaverse development, a vision he previously positioned as central to the company's future and the primary reason behind changing its name from Facebook Inc.

According to individuals familiar with internal discussions who requested anonymity, executives are evaluating potential budget reductions of up to 30% for the metaverse division next year. This group encompasses Meta Horizon Worlds and the Quest virtual reality unit. Cuts of this magnitude would likely necessitate workforce reductions as early as January, though final decisions remain pending.

The proposed metaverse budget reductions are part of Meta's annual financial planning for 2026, which included multiple strategy sessions at Zuckerberg's Hawaii compound last month. The CEO has requested Meta executives to identify 10% cuts across all departments, consistent with directives during similar budget cycles in recent years.

The metaverse group faces more substantial cuts this year because Meta hasn't encountered the industry-wide competition in this technology space that it initially anticipated. Most of the proposed reductions would impact Meta's virtual reality group, which constitutes the largest portion of metaverse-related expenditures, with additional cuts targeting Horizon Worlds.

The entire metaverse initiative has faced scrutiny from investors who view it as a financial burden, as well as from regulatory bodies alleging compromised privacy and safety for children in these virtual environments. Meta's stock increased by as much as 5.7% following market opening in New York, marking its largest intraday gain since July 31.

A Meta spokesperson declined to provide comment on these developments.

Despite Zuckerberg's continued conviction, Meta's metaverse vision has failed to gain significant traction. In 2021, while Facebook confronted criticism over user safety and privacy concerns, Zuckerberg rebranded the entire company around the metaverse concept and began investing heavily in this direction.

The metaverse group operates within Reality Labs, Meta's division focused on long-term initiatives including VR headsets and AR glasses. Since early 2021, this division has accumulated losses exceeding $70 billion. Zuckerberg has largely stopped referencing the metaverse in public appearances and earnings calls, pivoting instead to developing advanced AI models for chatbots and other generative AI products, along with hardware more closely aligned with these experiences, such as Meta's Ray-Ban smart glasses.

Numerous analysts and investors have long advocated for Zuckerberg to divest Reality Labs products that continue to consume resources without generating substantial revenue. In April, Mike Proulx, vice president at research firm Forrester, predicted Meta would "shutter its metaverse projects, like Horizon Worlds" before year-end.

Proulx characterized Meta's "Reality Labs division as a leaky bucket" in an email, highlighting the unit's consistent losses. He suggested that discontinuing metaverse efforts would "allow the company to give more focus to its AI projects including Llama, Meta AI, and AI glasses."

Despite these challenges, Meta remains committed to consumer hardware development and recently recruited Apple Inc.'s leading design executive to strengthen these efforts.