Meta Preps Major Metaverse Cuts, Analysts Predict Earnings Pop
News Summary
Meta Platforms Inc is considering cutting up to 30% of its 2026 Metaverse budget, primarily targeting the Quest virtual reality unit and Horizon Worlds, which account for the bulk of metaverse-related investment. JPMorgan analyst Doug Anmuth maintained an Overweight rating on Meta, projecting total Reality Labs spending of $21 billion in 2025 and $26 billion in 2026. He noted that a 30% reduction in metaverse spending could save up to $5 billion, potentially leading to 11,000–13,000 headcount reductions, representing 15–17% of its Q3 ending workforce. Bank of America Securities analyst Justin Post reiterated a Buy rating, estimating that a 30% cut in Reality Labs spending could save $6–$6.5 billion, translating to roughly $2 per share in after-tax EPS—about 6–7% upside to the Street's 2026 EPS estimate of $29.74. He also noted that a 10% cost reduction across other business areas could yield an additional $10 billion in savings, likely reallocated to data center and AI investments. Analysts generally agree that while overall costs are still expected to grow materially in 2026, these cuts demonstrate Meta's financial discipline and flexibility in cost allocation to protect EPS growth, addressing investor concerns about long-term Metaverse investments. The move is seen as constructive for sentiment and reinforces confidence in Meta's pivot towards AI and other growth drivers.
Background
Meta Platforms (formerly Facebook) rebranded in October 2021 to signal its strategic pivot towards the metaverse, investing heavily in its Reality Labs division. However, these investments have consistently resulted in substantial losses for Reality Labs, leading to investor scrutiny regarding the long-term viability and return on investment of its metaverse strategy. This news in 2025 follows Meta's 11% stock drop since its Q3 2025 earnings report, where the company flagged that total expenses would rise “significantly” faster in 2026, indicating market concern over rising costs. Concurrently, the broader tech industry is undergoing a significant shift towards Artificial Intelligence (AI), and Meta has been actively reorienting its strategic focus to allocate more resources to AI research and applications. The decision to cut the metaverse budget can be viewed as a significant strategic adjustment by Meta, made in response to investor pressure, internal resource optimization, and the prevailing external wave of AI technology.
In-Depth AI Insights
What are the true motivations and long-term strategic considerations behind Meta's metaverse budget cuts? - Superficially, this move is a direct response to investor concerns over Reality Labs' heavy losses and projected expense growth, aiming to boost short-term earnings expectations and stock performance. - More profoundly, it represents a strategic rebalancing between Meta's