Quick overview

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Mark Zuckerberg is expected to significantly reduce funding for the metaverse, which he previously promoted as the future of the company and as the reason behind its rebranding from Facebook.

The metaverse team, which includes the virtual worlds product Meta Horizon Worlds and the Quest virtual reality unit, may face budget cuts of up to 30% next year, according to sources familiar with the discussions who requested anonymity due to the confidential nature of the company’s plans.

While a final decision has not yet been made, these sources indicated that such substantial cuts could result in layoffs as early as January.

Shares rose as much as 6% intraday before settling up 3.4% to $661.53. Concerns about the metaverse’s $70 billion+ burn rate since 2021 have subsided as investors see the cuts as a welcome reallocation towards high-growth AI.

The rally represents relief from a bet that has long irritated shareholders, with Mizuho analyst Lloyd Walmsley projecting that the cuts could increase 2026 EPS by $2 to $29.50, maintaining an Outperform rating and $815 target.

More broadly, Meta’s AI initiatives, such as the restructuring of Superintelligence Labs, stand in stark contrast to the metaverse’s stagnation, where Horizon Worlds user engagement is still relatively low (less than 300,000 monthly active users).

Meta has confirmed a decrease in resources allocated to the metaverse, stating that futuristic projects within its Reality Labs division—such as AI glasses and other wearables—are expected to benefit from these savings. A company spokesperson mentioned, “We are reallocating some of our investment from the Metaverse within our overall Reality Labs portfolio due to the momentum in wearables and AI glasses. We do not intend to make any significant changes beyond that.”

Proposed cuts to the metaverse budget are part of the company’s budget planning for next year, which included several meetings at Zuckerberg’s Hawaii compound last month. Sources have reported that Zuckerberg has instructed Meta executives to pursue overall cuts of 10%, a typical request made during budget cycles.

The metaverse group was created in response to the diminished level of industry-wide competition in this technology compared to earlier times.