Meta Platforms Inc. (NASDAQ: META, ETR: FB2A, SWX: FB) has reportedly halted development on a high-end virtual reality headset, a move that reflects broader cost-cutting measures within its Reality Labs division. This development may impact investor sentiment, according to analysts at Bank of America.
The Information has reported that Meta has canceled the anticipated headset, which was slated for release in 2027 as a competitor to Apple’s Vision Pro. The decision came after a product review meeting, where it was determined that the complex manufacturing process made it challenging to keep the device affordable for consumers.
Bank of America analysts noted that this move aligns with Meta’s recent strategic focus on investing only in areas with the highest potential returns. They commented in a client note, “The cancellation of the headset is consistent with recent management statements that Meta will prioritize investments with the greatest potential for return.”
The analysts also pointed out that the market might not yet be ready for such a high-end VR device, as Meta’s recent virtual reality hardware sales have fallen short of expectations based on quarterly Reality Labs revenues.
They identified two significant implications of ongoing cost rationalization at Reality Labs. First, reducing headcount and hardware costs could help mitigate potential year-over-year margin declines in 2025 due to increased depreciation expenses. Second, if Reality Labs’ losses are minimized, it could lead to a valuation boost for Meta’s stock, with a shift in focus to the core business earnings per share (EPS), which is currently about $6 higher than the existing estimate including Reality Labs’ losses.
Bank of America maintained its ‘Buy’ rating on Meta’s stock and set a price target of $563. The analysts emphasized their positive outlook, noting, “We continue to view Meta as a leading player in the AI and consumer Internet sectors. The stock could benefit further from improvements in Reality Labs’ losses and potential regulatory actions against TikTok.”
As of Monday afternoon, Meta shares were down 1.5% at $520.
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