Mad Hedge Technology Alerts!
Meta (META) cutting staff in its virtual reality and augmented reality divisions means uncertainty about future products originating from these places.
The juice has not been worth the squeeze.
I think everyone remembers when Founder Mark Zuckerberg had those goofy metaverse commercials depicting him as an avatar when he debuted the company name change from Facebook to Meta.
Well, the metaverse project isn’t working, which is why he’s firing staff from those projects.
The metaverse division has underdelivered and overpromised.
This lethal cocktail of failure is finally forcing management to cut off the fat from its body.
VR and AR are now losing billions of dollars per year, and as the business environment turns more pragmatic, these experimental projects are thrown out for good.
META said its Reality Labs unit recorded an operating loss of $4.97 billion while generating $1.1 billion in sales.
A nice quarterly performance of minus 3 billion dollars has forced management to make some tough decisions.
Now, the AR and VR divisions will be gutted.
Reality Labs is Meta’s unit that makes the Quest family of virtual-reality headsets and Ray-Ban Meta Smart Glasses.
Meta CEO Mark Zuckerberg kick-started his company’s VR endeavors in 2014 when it acquired the startup Oculus for $2 billion. Since then, Zuckerberg has characterized VR and AR as central to his plans to develop the futuristic digital world known as the metaverse, which he has said represents the next major computing platform.
Reality Labs has piled up an operating loss of more than $60 billion since 2020.
The losses cannot just be swept under the carpet.
Meta last week said it would invest between $60 billion and $65 billion in 2025 capital expenditures to expand its computing infrastructure related to artificial intelligence.
Even this AI infrastructure build-out is questionable at this point, as other big tech firms pull back from this type of investment.
Meta released its latest VR headset, the $299 Quest 3S, during its September Connect event and pitched the device as a way for people to watch movies, play games, and work out in VR.
Microsoft (MSFT) has lost at least $5 billion on HoloLens since the launch of the first model in 2016.
The Microsoft HoloLens is a mixed reality headset that allows users to overlay digital information onto the real world, creating a blended experience of physical and digital environments.
Microsoft’s withdrawal from the market for augmented and virtual reality hardware leaves competitors such as Apple and Meta with a less crowded field on which to compete.
Apple (AAPL) is another company that has bet on AR and VR.
In short, VR and AR have been money pits that suck up investment dollars, but deliver nothing in terms of profit.
Whether it is Meta, Apple, or Microsoft, they have all struck out at this technology and will need to embrace the reality that consumers don’t want Google-type technology on their face to interact with a screen.
AR and VR divisions should be buried in the graveyard of attempted technology that people aren’t interested in.
Back to the drawing board…
Mad Hedge Technology Letter
April 23, 2025
Fiat Lux
Featured Trade:
(TESLA HITS AN AIR POCKET)
(TSLA)
Tesla (TSLA) has problems and so do other tech firms at the start of 2025.
Saying that doesn’t give comfort even with a great bull market of 12 years.
The scary thing here is that many tech bulls might believe this is the end of the stock market party.
Moving forward, we will see many tech firms miss gross revenue and profitability.
Then there is the future forecast and I wouldn’t blame management on making excuses using the trade war which they can’t control.
Tesla missed their first quarter revenue target by nearly $2 billion.
Management has literally been in Washington DC getting into politics, and that has hurt Tesla’s stock.
Tesla’s stock almost halved to around $200 before catching a bid.
CEO and Founder Elon Musk said he will step back from his role with DOGE, staying involved part time.
He said he'll continue to spend a day or two a week on government matters, for as long as President Donald Trump wants him to.
Looking forward, a potential key revenue driver is the robo-taxi.
Tesla is set to debut this service in Austin this June, starting with "maybe 10 to 20 vehicles," Musk said.
Tesla also confirmed on the call that the initial launch will include remote human operators who can intervene if a vehicle becomes stuck or encounters an issue.
Musk said the goal is to bring the service to "many other cities in the US by the end of this year," predicting that "there will be millions of Teslas operating fully autonomously in the second half of next year."
Musk said that Tesla would be "the least affected car company" when it comes to tariffs.
"With respect to supply chain risk, something that Tesla has been working on for several years, is to localize supply chains," Musk said. "Tariffs are still tough on a company when margins are still low, but we do have localized supply chains in both America, Europe, and China, so that puts us in a stronger position than any of our competitors."
I do believe the low 200 level for the stock should hold as resistance for TSLA.
Much of the bad news, and there is a lot, is already priced into the stock.
It will be interesting to see if the brand recovers, because the product is deeply unpopular in California and Western Europe.
To be honest, while we wait on the robo-taxi to roll out, Musk saw an air pocket and we are hitting that with full turbulence.
That being said, if there was not a change of administration, there is no way he could make headway with the robo-taxi division.
Musk is waiting on the robo-taxi to save the day and the possibility that happens is better than 50%. In the meantime, I believe he will have a hard time moving sales of his standard EV. He has done a lot of damage by alienating half of his addressable audience.
I believe the stock slowly creeps higher, but in a volatile way.
As for Musk, I think he’ll be spending more time at his day job moving forward and that should help the stock just for that.
