Meta Connect 2024

Key Takeaways and Questions

• According to Visible Alpha consensus, Reality Labs’ sales are projected to hit $2.2 billion by the end of FY 2024, but losses are expected to continue.
  • Priced at $299.99, will Quest 3S start to increase sales and reduce losses?
• Smart glasses are taking off.
  • How long will it take for this category to grow sales and break even?
• Llama 3.2 is multi-modal.
  • What impact could this have on Meta’s business model?

Meta Platforms (NASDAQ: META) hosted its Meta Connect 2024 conference on September 25-26, 2024. In the opening keynote speech, CEO Mark Zuckerberg highlighted new product innovations all geared toward making people feel closer and strengthening relationships. On the hardware side, the company showcased a faster, smoother Quest 3S VR headset and a prototype of an upgraded pair of smart glasses called Orion. In addition, Zuckerberg discussed the new Meta AI innovations.

Meta Quest 3S

Source: Meta Connect 2024 on September 25, 2024

Quest 3S Mixed Reality Headset

Meta’s Quest 3S mixed reality headset will ship on October 15 for $299.99, down from $499.99, a fraction of Apple’s $3,499. The game, Batman Arkham Shadow, will be included with Quest 3/3S this fall. Will these improvements and the $200 price drop help to stimulate sales this holiday season?

Improvements and optimization to the tech stack supported the Quest 3S mixed reality experience upgrade. The passthrough has also improved, but probably still trails Apple’s Vision Pro. Meta expanded its content and will integrate Dolby Atmos. Meta’s social apps have been rebuilt to benefit from the mixed reality experience. While gaming and consumer markets are important, Meta’s objective is to lay the groundwork for a general computing platform within the headset and to bring in many more users.

In addition to its core segments, Meta is also going after the enterprise market. Quest is going to be a natural extension of the PC. Meta has been working with Microsoft on remote desktop to take mixed reality to the workplace at scale.

How big could this opportunity be for Meta?

Orion

Source: Meta Connect 2024 on September 25, 2024

Smart Glasses

CEO Zuckerberg highlighted that smart glasses are taking off faster than expected. The next-gen smart glasses featured enhancements, including live translation and multi-modal integration to the AI assistant.

While these improvements to the Ray-bans are interesting, the next-generation augmented reality holographic glasses prototype, Orion, seemed to steal the show. A video showed Nvidia CEO Jensen Huang trying out Orion and commenting on the functionality and lightweight. 

Orion and Nvidia

Source: Meta Connect 2024 on September 25, 2024

Implications for Reality Labs

With these new product releases, how they will help to drive revenues and reduce losses in this segment will be key. Reality Labs has been a meaningful drag on the company’s total operating profit margin with little visibility into when this drag will improve.

According to Visible Alpha consensus, Reality Labs’ sales expectations have been trending down. Since last quarter, analyst estimates for Reality Labs revenues have declined from $2.3 billion to $2.2 billion for FY 2024 and from $2.7 billion to $2.6 billion for FY 2025. In contrast, Analysts’ forecasts of operating losses at Reality Labs have improved from -$18.9 billion to -$18.5 billion in FY 2024 and from -$21.5 billion to -$19.9 billion in FY 2025. However, there is significant debate about the future level of losses for Reality Labs and a wide range of loss estimates.

The Stack

Source: Meta Connect 2024 on September 25, 2024

Llama 3.2

Meta featured its stack for its open-source Llama to support developers with a set of Reference APIs designed to help drive the adoption of the Llama models. To support Open Source AI, Meta also released Llama models which include small text (1B and 3B) for edge and mobile and multi-modal (11B and 90B) models.

The significantly declining cost was highlighted too. However, it is unclear how this will continue in the future with higher computing needs for future Llama upgrades.

Meta AI

Meta AI’s capabilities were in focus at the conference. Meta AI is an assistant to help answer questions and requests that will now be powered by Llama 3.2. CEO Zuckerberg called out that Meta AI has ~500 million users and will expand business AIs to companies.

Meta will roll out Meta AI Voice, translation, and enhanced multi-modal features that will enable users to share and ask questions in natural language. Meta AI will also expand to create content and images with AI.

Will these enhancements help to drive engagement in Meta’s family of apps, leading to higher sales in FY 2025?

META Segment Revenue and Income Consensus

Source: Visible Alpha consensus (September 26, 2024). Stock price data courtesy of FactSet. Meta’s current stock price is as of the market close on September 25, 2024