I read [this article](https://kotaku.com/facebook-metaverse-vr-2022-billions-13-billion-quest-2-1850062517) this morning about how ~~Facebook~~ Meta’s VR division “Lost $13.72 Billion In 2022”. The article later says that Meta is burning through money. But if they’re spending money to generate a product, doesn’t that money go somewhere? If Meta doesn’t have the $14 billion, who does?
In: 0
Companies have a spend rate which is offset by revenue rate. A lot goes into both of those numbers, but basically a company is burning through money when their spend rate either exceeds their revenue rate, meaning they are spending more/faster than they are able to recoup. Or, their spend rate is threatening to exceed their revenue rate.
Some common reasons
Overstaffing
Overpaying (usually applies to C level and above)
Excessive “perks”
Poorly priced products
Over leveraged give aways/promotions
Over diversified
Large companies like Meta will have existing product revenue but also invest into many different projects/products for the future. The company will have a strategy of reinvesting a portion of their revenue to fund these projects (which are usually NOT making a lot of revenue if any).
In some circumstances, say a pandemic, war or global energy crisis, the assumptions built into current revenue and future project revenues have to be revised. But these projects will continue to need funding (salaries, labs, etc) unless they are suspended or canceled, which any company would be reluctant to do since these projects are there for future growth.
There are, therefore, times when changing conditions cause current expenses to far outpace current revenues and the company will lose money.
Wages, heating, electricity, renting office space and office equipment including computers.
If you produce a good or service that is sold you have revenue coming in to balance out expenditures.
Meta spent a lot of money on VR related stuff, probably mostly paying wages of staff, but they did not generate substantial revenue. Meta needs their vr stuff to be widely adopted by the public so they can sell ads there. No users, no advertising revenue, all your investments paying staff to create the digital product is ‘burnt’. Money spent advertising your vr world has probably also been wasted, along with paying for buildings for your staff to work in, etc.
It’s going to people they’re paying to advertise. It’s going to the people they’re paying who build and maintain the servers. It’s going to any past debts they’ve made. R&d for VR isn’t cheap either, and that’s currently a huge money-sink
Employees don’t work for free.
The lights don’t stay on for free.
The software licenses aren’t free.
The rent in the building isn’t free.
The hardware they’re prototyping isn’t free.
These things add up, and in Facebook’s case the R&D cash burn on whatever the Metaverse is supposed to be appears to be massive.
The money goes to payroll (salaries of the people doing the research, HR, managers, etc.), facilities (buildings they work in), taxes, prototyping technology, among other places.
It costs a lot of money to run a business, especially one as bloated as Meta
Latest Answers