Mark Zuckerberg's metaverse ambitions are shrinking

• In a year, the metaverse went from Meta CEO Mark Zuckerberg's obsession to rarely being mentioned.
• Reality Labs is expected to be hit with a new round of layoffs that will affect 10,000 employees.
• AI, which can improve Meta's advertising business, is now its "single largest investment."

About a year ago, Meta CEO Mark Zuckerberg couldn't stop talking about the metaverse, saying it was no less than the future of his entire company. He renamed the company in honor of these ambitions. Today, it's a relative blip when he speaks publicly.

In his Tuesday note regarding plans to lay off 10,000 employees at the company, formerly known as Facebook, Zuckerberg mentioned the metaverse just twice in over 2,000 words, many of which were focused on the future of the company. He mentioned AI four times, positioning the development of that technology as now being Meta's "single largest investment."

It's a major shift from the whole of 2022, when building the metaverse was more of an obsession for Zuckerberg, even as those inside the company and close to the CEO grew quickly concerned about its business prospects and a lack of strategy. The metaverse was previously billed as an immersive, 3D version of the entire internet.

Now, Zuckerberg says AI is being built "into every one of our products."

"We have the infrastructure to do this at unprecedented scale and I think the experiences it enables will be amazing," he said of AI in his note.

Meta also focused on discussing AI in its fourth quarter and full-year earnings. Executives mentioned it half a dozen times during a call with Wall Street analysts, while the metaverse was not mentioned at all.  Already, Meta uses AI to improve targeting content to users, and importantly, the targeting capability of its massive advertising business, which is still recovering from Apple's privacy changes of early last year.

Zuckerberg wrote Tuesday that building the metaverse "also remains central to defining the future of social connection," before quickly moving on to talk of user growth on Meta's apps Facebook, Instagram, and WhatsApp.

That was about it for the metaverse. Last month, Zuckerberg and new CFO Susan Li noted that Reality Labs, the division handling metaverse work and projects overseen by CTO Andrew Bosworth, would be put under the same "efficiency" push as the rest of the company. Last week, Li pointed to Reality Lab products like the Portal device as an example of the types of projects that would be shut down this year.

"In our Year of Efficiency, we are focused on canceling projects that are duplicative or lower priority and making every organization as lean as possible," Zuckerberg said Tuesday.

It's a relief to investors and Wall Street analysts, who last year grew increasingly frustrated with Zuckerberg's once defiant tone on the massive cost of metaverse work. Reality Labs lost nearly $14 billion last year. It's set to lose $15 billion this year and is on track to cost the company $20 billion a year going forward. Now, the expectation is for that outlook to be slimmed down.

Shares of Meta hit their highest level in six months by Tuesday afternoon. The stock was up over 7% that day.

Meta's expense outlook for 2023 has already shrunk again by $3 billion, down to a range of $86 billion to $92 billion from a previous guidance of $89 billion to $95 billion, Evercore senior managing director Mark Mahaney noted on Tuesday 

"The Year of Efficiency is becoming more efficient," Mahaney said. "With the new, lowered expense guidance, Meta is declaring that it can recover to growth with de minimis growth in expenses."

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