Metaverse off to ominous start after VR headset sales shrank in 2022
Meta CEO Mark Zuckerberg demonstrates an Oculus Rift virtual reality (VR) headset and Oculus Touch controllers during the Oculus Connect 3 event in San Jose, California, U.S., on Thursday, Oct. 6, 2016.
David Paul Morris | Bloomberg | Getty Images
Over a year after changing his company’s name to Meta and committing to spend billions of dollars developing the metaverse, Mark Zuckerberg’s bet on virtual reality is no closer to paying off.
Sales of VR headsets in the U.S. this year declined 2% from a year earlier to $1.1 billion as of early December, according to data shared with CNBC by research firm NPD Group. Facebook’s advertising business generates that much revenue about every three days.
With the ad business mired in a slump, Zuckerberg has been looking to VR devices and related technology to pull Meta into the future. But data from analyst firm CCS Insight reveals that worldwide shipments of VR headsets as well as augmented reality devices dropped more than 12% year over year to 9.6 million in 2022.
Taken together, the estimates of VR headset sales and shipments create a problematic picture for Meta, whose stock price has lost about two-thirds of its value this year. Zuckerberg has said he’s playing the long game with the metaverse, expecting it take up to a decade to go mainstream and projecting it will eventually host hundreds of billions of dollars in commerce.
It’s not just Meta. Numerous venture firms and other tech companies have wagered big over the past decade on a futuristic world of virtual work, education, fitness and sports.
Meta’s Quest 2 headset, released in 2020, is by far the leader in the VR market, according to several analysts. Competing devices from companies like Valve, HP and Sony represent a small fraction of the market.
Sales of Meta’s flagship Quest device dropped in 2022, a decline that can be attributed to the device’s big year in 2021, said Ben Arnold, NPD’s consumer electronics analyst.
“VR had an amazing holiday in 2021,” Arnold said, referring to various promotions that helped boost sales of the devices at a time when gaming consoles like Sony’s PlayStation 5 were in short supply. “It was a great time last year to get one of these products, and VR totally crushed it.”
VR headset revenue in the U.S. doubled in 2021 from about $530 million in 2020, according to NPD.
A confluence of factors contributed to lower sales and shipments in 2022.
The Quest 2 has been around for a few years and, like any consumer electronics device, has lost some appeal as it’s aged. And while Meta released a new VR headset in fall, the Quest Pro, that device is geared toward businesses and costs $1,100 more than the Quest 2, pushing it even further out of reach for many VR enthusiasts.
Meta decided over the summer to raise the price of the Quest 2 by $100, citing inflationary pressures.
Leo Gebbie, an analyst at CCS Insight, said in an email that Meta’s price increase was a surprise “given that the company has been willing to sell the headset at such a low margin to try and drive uptake of VR and gain a high market share.”
Meta declined to comment about its VR headset sales or third-party estimates.
All eyes on Apple
Next year is expected to be another “slow year” for the VR market, CCS Insight said in its latest report, citing a weak economy and inflation.
Gebbie said “consumer budgets will be tightening,” and “non-essential purchases like VR headsets are likely to be the casualty of this.”
Sony’s next-generation VR headset will cost $550 when it debuts in February. Arnold said that while the PlayStation VR2 will “give the market kind of a shot in the arm,” it will likely not influence the overall VR market as much as the Quest 2 because Sony’s device requires owners to have a PlayStation 5 as way to power the headset.
Sony PlayStation VR2 headset
Sony
“The total addressable market of the PSVR2 is going to be PlayStation owners,” Arnold said.
A major question for next year remains whether Apple, as long rumored, will unveil a VR headset.
Apple could create a compelling VR headset with an accompanying software ecosystem, Arnold said.
Additionally, Apple’s reputation as a leader in consumer technology could provide a spark to the dim VR market, making the technology more attractive to the general public.
“If one company has the ability to transform the VR market overnight, it’s Apple,” said Gebbie. “With its hugely loyal fanbase, many of whom are comfortable with spending large amounts of money on technology, if Apple was to launch a headset we expect that it would perform very well.”
Apple is reportedly building a VR headset with AR features for a release as soon as 2023.
Eric Abbruzzese, a research director at ABI Research, said Apple could have success launching a VR headset geared toward businesses, which would likely help lure developers to the community. But the high price of an enterprise VR headset, which would likely retail for several thousand dollars, would still make it difficult for Apple to move the needle, Abbruzzese said.
“It probably won’t even ship 5 million units in its first year,” Abbruzzese said of an Apple enterprise VR headset. “But it is the first notable product from a huge tech incumbent.”
Apple didn’t respond to a request for comment.
One major thing the VR world lacks is a breakout hit, or a killer app.
Some games have gotten traction, like the musical rhythm game Beat Saber and VR versions of popular titles like Resident Evil, Abbruzzese said. And some users are showing more interest in using VR for fitness activities.
But in the console market, blockbuster games like FIFA and Call of Duty are “shipping hundreds of millions of products,” he said.
Meanwhile Meta’s Horizon Worlds social VR platform is still in its experimental phase.
“The only metaverse product really is Horizon and it’s not good right now,” Abbruzzese said.
WATCH: Meta has a tremendous future if it can just stop making mistakes
The X logo appears on a phone, and the xAI logo is displayed on a laptop in Krakow, Poland, on April 1, 2025. (Photo by Klaudia Radecka/NurPhoto via Getty Images)
Nurphoto | Nurphoto | Getty Images
Elon Musk‘s xAI Holdings is in discussions with investors to raise about $20 billion, Bloomberg News reported Friday, citing people familiar with the matter.
The funding would value the company at over $120 billion, according to the report.
Musk was looking to assign “proper value” to xAI, sources told CNBC’s David Faber earlier this month. The remarks were made during a call with xAI investors, sources familiar with the matter told Faber. The Tesla CEO at that time didn’t explicitly mention any upcoming funding round, but the sources suggested xAI was preparing for a substantial capital raise in the near future.
The funding amount could be more than $20 billion as the exact figure had not been decided, the Bloomberg report added.
Artificial intelligence startup xAI didn’t immediately respond to a CNBC request for comment outside of U.S. business hours.
The AI firm last month acquired X in an all-stock deal that valued xAI at $80 billion and the social media platform at $33 billion.
“xAI and X’s futures are intertwined. Today, we officially take the step to combine the data, models, compute, distribution and talent,” Musk said on X, announcing the deal. “This combination will unlock immense potential by blending xAI’s advanced AI capability and expertise with X’s massive reach.”
Read the full Bloomberg story here.
— CNBC’s Samantha Subin contributed to this report.
Alphabet CEO Sundar Pichai during the Google I/O developers conference in Mountain View, California, on May 10, 2023.
David Paul Morris | Bloomberg | Getty Images
Alphabet‘s stock gained 3% Friday after signaling strong growth in its search and advertising businesses amid a competitive artificial intelligence environment and uncertain macro backdrop.
“GOOGL‘s pace of GenAI product roll-out is accelerating with multiple encouraging signals,” wrote Morgan Stanley‘s Brian Nowak. “Macro uncertainty still exists but we remain [overweight] given GOOGL’s still strong relative position and improving pace of GenAI enabled product roll-out.”
The search giant posted earnings of $2.81 per share on $90.23 billion in revenues. That topped the $89.12 billion in sales and $2.01 in EPS expected by LSEG analysts. Revenues grew 12% year-over-year and ahead of the 10% anticipated by Wall Street.
Net income rose 46% to $34.54 billion, or $2.81 per share. That’s up from $23.66 billion, or $1.89 per share, in the year-ago period. Alphabet said the figure included $8 billion in unrealized gains on its nonmarketable equity securities connected to its investment in a private company.
Adjusted earnings, excluding that gain, were $2.27 per share, according to LSEG, and topped analyst expectations.
Alphabet shares have pulled back about 16% this year as it battles volatility spurred by mounting trade war fears and worries that President Donald Trump‘s tariffs could crush the global economy. That would make it more difficult for Alphabet to potentially acquire infrastructure for data centers powering AI models as it faces off against competitors such as OpenAI and Anthropic to develop largely language models.
During Thursday’s call with investors, Alphabet suggested that it’s too soon to tally the total impact of tariffs. However, Google’s business chief Philipp Schindler said that ending the de minimis trade exemption in May, which created a loophole benefitting many Chinese e-commerce retailers, could create a “slight headwind” for the company’s ads business, specifically in the Asia-Pacific region. The loophole allows shipments under $800 to come into the U.S. duty-free.
Despite this backdrop, Alphabet showed steady growth in its advertising and search business, reporting $66.89 billion in revenues for its advertising unit. That reflected 8.5% growth from the year-ago period. The company reported $8.93 billion in advertising revenue for its YouTube business, shy of an $8.97 billion estimate from StreetAccount.
Alphabet’s “Search and other” unit rose 9.8% to $50.7 billion, up from $46.16 billion last year. The company said that its AI Overviews tool used in its Google search results page has accumulated 1.5 billion monthly users from a billion in October.
Bank of America analyst Justin Post said that Wall Street is underestimating the upside potential and “monetization ramp” from this tool and cloud demand fueled by AI.
“The strong 1Q search performance, along with constructive comments on Gemini [large language model] performance and [AI Overviews] adoption could help alleviate some investor concerns on AI competition,” Post wrote in a note.
WATCH: Gemini delivering well for Google, says Check Capital’s Chris Ballard
CNBC’s Jennifer Elias contributed to this report.
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