TLDR
- Meta Platforms stock jumped 4.2% after Bloomberg reported Mark Zuckerberg may cut metaverse spending by up to 30% in 2026
- Potential cuts could affect Meta Horizon Worlds and Quest VR units, with layoffs possible as early as January
- Mizuho maintains Outperform rating with $815 price target, sees potential rally ahead
- Reality Labs division on track to lose nearly $18 billion this year, with $80 billion in cumulative losses since 2019
- Metaverse cuts could add approximately $2 per share to 2026 earnings estimates
Meta Platforms shares rose 4.2% in Thursday trading after reports emerged that the company is considering major cuts to its metaverse division budget. Bloomberg reported that CEO Mark Zuckerberg is weighing reductions of up to 30% for the metaverse group’s 2026 budget.
The potential cuts would target Meta Horizon Worlds and the Quest virtual reality unit. According to the report, layoffs could begin as early as January. However, no final decisions have been made.
Mizuho analysts view these potential changes as a turning point for the stock. “We see a significant rally ahead for Meta shares, and recommend investors add to positions,” the firm stated.
The analysts explained that cuts of this magnitude could boost the company’s 2026 earnings per share by roughly $2. Their current EPS estimate stands at $29.50. The improvement would come from reduced losses at Reality Labs, Meta’s metaverse division.
Reality Labs continues to drain company resources. The division is on pace to lose almost $18 billion this year. Since 2019, the unit has accumulated about $80 billion in cumulative operating losses.
Investor Frustration Reaches Breaking Point
Mizuho described investor sentiment as “downright despondent” following Meta’s third quarter results. The company projected sharply higher investment spending for 2026 instead of signaling a pullback. This announcement disappointed Wall Street.
The analysts held meetings with US investors in recent weeks. These conversations revealed widespread frustration with Reality Labs spending. Many investors view the division as a costly bet with limited returns.
The potential pivot away from heavy metaverse investment could change the narrative around Meta’s capital allocation strategy. Investors have questioned the company’s commitment to funding a technology that hasn’t gained mainstream traction.
Valuation and Future Outlook
Mizuho maintains its Outperform rating on Meta stock. The firm’s price target remains at $815. In a bull case scenario, analysts see the stock reaching $1,245.
Meta currently trades at 22 times 2026 earnings. This valuation sits slightly above its three-year average. However, it remains below the S&P 500 relative multiple the stock typically commands.
Analysts believe a shift in capital allocation combined with stronger revenue growth could drive estimate increases and multiple expansion. The firm suggests that demonstrating fiscal discipline on metaverse spending while investing in generative AI could boost investor confidence.
The plan to reduce spending in an area viewed as a money pit should reassure investors. It signals that Meta’s move to scale up investment in generative AI won’t be an unlimited spending commitment.
Meta’s decision to potentially trim metaverse budgets comes as the company faces pressure to justify its massive investments in the space. Reality Labs losses of roughly $5.85 per share weigh on overall profitability. Cutting these losses could provide immediate benefits to the bottom line.
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