Meta's pivot to AI and Threads is paying off, but Quest 2 profits are sagging

The cover screen for the Instagram Threads social app on a Motorola Edge+ (2023)
(Image credit: Nicholas Sutrich / Android Central)

What you need to know

  • Meta reported an 11% increase in revenue and 29% operating margin on Wednesday, leading to a significant stock boost.
  • CEO Mark Zuckerberg focused on how AI-based recommendations are driving higher ad revenue and retention on Reels.
  • Reality Labs' profits are down and expenditures are up, but Zuckerberg promised that the upcoming Meta Quest 3 headset will improve matters. 
  • He discussed how Threads was an unexpected success, and that the company will focus on growing its user base before attempting to monetize it. 

Meta's Year of Efficiency, also known as its year of mass layoffs to assuage shareholders, appears to be paying off. In the Meta Q2 2023 earnings call on Wednesday, the company revealed promising numbers for the company — though its investment in the Metaverse continues to drain its resources. 

CEO Mark Zuckerberg and CFO Susan Lee outlined the raw numbers: the company had an 11% increase in revenue to about $32 billion, while its daily active users across all Meta apps rose to 3.07 billion. 

Just as Google's earnings call focused heavily on their future AI endeavors, Zuckerberg talked at length about Llama 2, the ChatGPT-rivaling open-source AI, and how it will be used "across our services" starting later this year. 

Meta is already using AI to recommend Facebook posts, Reels, and Threads that users aren't following, and Zuckerberg claims that they've seen a "7% increase in overall time spent on Facebook" since implementing their AI algorithms. 

Zuckerberg used the example of Threads' "unprecedented" success to say that his Efficiency strategy is paying off. He said that the app "was built by a relatively small team on a tight timeline," proving that smaller teams can "build higher quality products faster."

Meta Quest 3 official product render

(Image credit: Meta)

For the future of Threads, Meta will concentrate on user retention and "improving the basics" for now before they decide to "focus on monetization" down the line. In other words, enjoy Threads now while you can before Meta decides it has enough users to start bombarding them with ads. 

Zuckerberg also took a moment to poke fun at Twitter, "or X, I guess it's called now." He said that they couldn't have predicted Threads would take off and that it's mainly thanks to all of the chaotic "factors" surrounding the company since Elon Musk acquired it. 

Cutting into those high profits, Reality Labs gained just $276 million from Quest sales while spending $3.74 billion on R&D. Evidently, consumers are buying fewer Quest 2 headsets while they wait for the Quest 3 to launch. 

Meta's AR investments allegedly won't pay off until 2027 after they canceled the consumer launch of their Artemis smart glasses. But Meta will reveal the mixed-reality Quest 3 at its Connect Conference on September 27, which could reverse Reality Labs' losses. That's also when Meta plans to unveil its new AI plans.

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.