Meta’s Q3 earnings prove AI and Reels will profit more than the Quest 3

The Meta sign at the company campus at 1 Hacker Way.
(Image credit: Michael Hicks / Android Central)

What you need to know

  • Mark Zuckerberg says Meta will shift lots of employees from non-AI projects to AI projects, as part of a new company focus.
  • Meta revenue for Q3 2023 was $34.1 billion, a 23% year-over-year increase, with the "highest operating margin in two years."
  • Company says 3.14 billion people used one of Meta's family of apps daily in September. 
  • Reality Labs' quarterly profits were lower than ever ($210 million), but Q4 profits should rise thanks to Quest 3 and Ray-Ban Meta smart glasses.

Meta's quarterly earnings from July to September don't reflect any future profits from its new devices: the Meta Quest 3 and Ray-Ban Meta smart glasses. But it's also clear that, from a business standpoint, Meta's VR/AR profits are chump change compared to its massive advertising profits, and that the metaverse buzzword has lost its luster compared to the new tech craze: AI. 

Speaking to investors during Meta's Q3 earnings presentation, CEO Mark Zuckerberg said that, in order to "continue on operating efficiently going forward," they would shift current employees to grow AI projects like Llama 2, Meta AI, and Gen AI instead of ending its hiring freeze to get outside help.

He noted that there were "30 million Llama downloads last month," and its new generative AI chatbots like Snoop Dogg should help that number grow. And behind the scenes, its "AI" algorithms push better video recommendations that increase user retention and ad revenue in the billions. 

Zuckerberg also took time to praise the new Quest 3, describing it and its mixed-reality tech as "building blocks" for his metaverse vision. But CFO Susan Li later admitted that they "expect [Reality Labs] operating losses to increase meaningfully year-over-year." 

In other words, no matter how well the Quest 3 and Ray-Ban Meta smart glasses sell, Reality Labs will still outspend their revenue in the billions.

Reality Labs has lost $11.47 billion so far in 2023, with Quest 2 profits included. Based on Li's prediction, R&D for future devices like the Quest 4 and its delayed AR glasses, along with "investments to further scale [Meta's] ecosystem," will balloon that number even higher.

The Meta Quest 3 with Touch Plus controllers and the new blue color cloth headstrap and facial interface

(Image credit: Nicholas Sutrich / Android Central)

Metaverse and Quest plans aside, the earnings call was largely positive for Meta and its investors. Its family of apps earned $33.9 billion in the last three months, and Li said Meta expects to earn $36.5 to $40 billion total next quarter. The new Quest 3 and Ray-Bans should contribute slightly to that number.

Zuckerberg boasted 3.14 billion people use apps like Instagram, Facebook, or WhatsApp daily, or 3.96 billion monthly. Meta is actually in hot water for how many people use its apps, based on a lawsuit from 33 U.S. states claiming that Meta is using addictive strategies to "entice, engage, and ultimately ensnare youth and teens" for profit.

Instagram Reels has "driven more than 40% increase in time spent on Instagram" and earns as much ad revenue as other apps, something Meta says it hadn't expected to happen so quickly.

As for Instagram Threads, which had 100 million sign-ups in five days back in July and then seemingly fizzled out, it still has just under 100 million monthly users, according to Zuckerberg, proving there's still a market for a Twitter/X alternative. 

Meta is "[reaping] the benefits of its expanding user base, growing adoption of Reels, and fresh AI initiatives," Jessie Cohen, senior analyst at Investing.com, told us. "All in all," she says, "it was a blowout quarter" for Meta.

Michael L Hicks
Senior Editor, Wearables & AR/VR

Michael is Android Central's resident expert on wearables and fitness. Before joining Android Central, he freelanced for years at Techradar, Wareable, Windows Central, and Digital Trends. Channeling his love of running, he established himself as an expert on fitness watches, testing and reviewing models from Garmin, Fitbit, Samsung, Apple, COROS, Polar, Amazfit, Suunto, and more.