Despite encouraging sales of Ray-Ban and Oakley smart glasses, losses at Meta Quest escalated Reality Labs losses to $4.4 billion this quarter.
What you should be aware of:
– Meta generated $51.2 billion in revenue, primarily from advertising, but only saw $2.7 billion in net income due to a One Beautiful Bill income tax and AI infrastructure capital expenditures.
– Reality Labs recorded a loss of $4.4 billion this quarter, with expectations of further declines in the next quarter unless a new Meta Quest launch occurs.
– The user base for Instagram and Threads grew to 3 billion and 150 million, respectively.
– The company plans to invest tens of billions into Meta Superintelligence Labs in 2026, and could face financial losses from lawsuits concerning child safety.
Meta is achieving unprecedented levels of advertising revenue and is successfully engaging users on its platforms for extended periods, utilizing AI, Mark Zuckerberg highlighted in Meta’s Q3 2025 earnings call. However, the company is also investing tens of billions in AI infrastructure to “front-load” computing power for an AI Superintelligence, leading to investor anxiety.
Zuckerberg and CFO Susan Li revealed the company’s record revenue of $51.2 billion this quarter, yet Meta’s net income plummeted 83% year-over-year, attributed to significant AI capital expenditures and a one-time $15.9 billion income tax from Trump’s 2025 tax law.
Aside from the tax one-off, Meta insists that the $19.4 billion spent this quarter on AI servers, data centers, and network infrastructure is “very likely to be a profitable thing” as it hastens their AI research on Superintelligence and enhances advertising efficiency. This approach is familiar to Meta, which makes substantial investments in visionary concepts like the “Metaverse” with the future promise of returns.
Promising a ‘profitable’ future for Reality Labs (eventually) following years of deficits:
During the Q3 earnings call, Meta took pride in the success of its recent AI glasses, noting that most Meta Ray-Ban Display store inventory sold out within “48 hours.” Nonetheless, Reality Labs’ research and development expenses remained high, resulting in a $4.4 billion net loss this quarter after generating $470 million in revenue.
Li stated that they expect “significant year-over-year growth in AI glasses revenue” next quarter, driven by the Ray-Ban Meta Gen 2 and Oakley Meta Vanguard glasses, but these profits will be “more than offset by the hurdles associated with Quest headsets,” mainly due to the absence of a Quest 3S launch this year.
It is somewhat unexpected that Ray-Ban sales are not anticipated to alleviate Reality Labs’ losses, or at least replicate the previous success of Quest headsets during the holiday season. Nevertheless, Zuckerberg reassured investors that “it will be a very profitable investment” in due course, starting with revenue from the glasses and then expanding “services” built on the hardware.
Zuckerberg elaborated that research and development expenses will persist for upcoming devices like Meta Orion, their full-field of view AR glasses, asserting that smart glasses are still “earlier in their curve” before evolving into a “sustained business.”
Eventually, however, they aim to engage “many hundreds of millions or billions of people, and that’s the juncture at which we foresee this becoming an extremely profitable business,” Zuckerberg concluded.
The Meta CEO previously mentioned the vision of billions of smart glasses in an earlier earnings call; current projections indicate that the total is still far from ten million, though EssilorLuxottica is gearing up to sell 10 million pairs of AI glasses annually beginning in 2026, with Meta as a key partner.
Meta’s plans and concerns for 2026:
Meta asserts that following this one “Big Beautiful Bill” tax obligation, there will be a “significant reduction in our U.S. federal cash tax payments,” thereby decreasing operational costs in the future. However, Meta is expected to reinvest those savings into AI.
Having spent a total of $70–72 billion on capital expenditures in 2025, Li cautions that “total expenses will increase at a considerably faster percentage rate in 2026 compared to 2025, with growth primarily driven by infrastructure costs, including additional cloud expenses and depreciation.”
This will facilitate the construction of Meta’s Superintelligence that “understands us deeply, appreciates our aspirations, and can aid us in realizing them.” Zuckerberg indicated that they are developing “truly frontier models with novel capabilities,” although he did not specify when these advanced AI tools will be available.
Meta also alerted investors that ongoing pressure from the European Union could result in a “significant negative impact on our European revenue,” while in the U.S., “a number of youth-related trials are scheduled for 2026” which could lead to financial losses. Meta has faced criticism for allegedly concealing potential dangers to children from VR games.
