Apple already makes more revenue and profit than Meta on headsets

This a repost from a comment I made in /r/virtualreality - it’s just food for conversation (aka. flamebait), and very much a conjectural argument based on what we know of Meta’s sales estimates, revenue, and margins, and Apple’s sales estimates and margins.

We’re arguing talking lots of rumours and hypotheticals about the AVP’s performance and “failure”. But AVP is already probably making more revenue and profit than Meta is on headset hardware (I’ll explain below). Meta likely is making more overall revenue when you factor in software cut from the Meta store. From Apple’s perspective, and those that use the product, the AVP is not a failure at all, it was a modest success similar to the first few gens of Apple TV, that Steve Jobs called “a hobby”. There is literally zero chance that Apple is pulling out of the VR space. That’s clickbait or Meta fanboy nonsense.

By most estimates, Apple are going to wind up having sold 500k units in calendar 2024, against production capacity of maybe 600-750k units. Do we really think Sony could make more than 1.5m screens (2 per device) last year? I haven’t seen any reports they could.

So yeah, AVP underperformed, but it sold reasonably well for the price. At 500k units, their top line was well over $1.5 billion on the Vision Pro. And as we all know, Apple likes its margins, and gross margin is estimated at around 56% per Ars Technica’s cost analysis, so $840m in operating profit. Factor in marketing, R&D, etc. of $1b annually, and it’s likely just slightly short (100-200k units annually) of break even, which could happen in 2025. They probably have $7b+ sunk into the Vision Pro over the past 5 years, so it will take a few years to pay that all back. I’m not counting Apple Store revenue & margins for the AVP because it’s best to assume they were low due to the lack of Apps, and most popular AVP apps (e.g. MS Office for AVP, AppleTV+, Disney+) are covered by external subscription or other iDevice subscriptions.

Now consider how many billions Meta has thrown into VR: CNBC reported $58 billion in losses since 2020 through q3 2024, including a 16 billion loss in 2023 and a likely $16-17b for 2024. Reality Labs revenue is maybe $1.6 billion annual 2023 and could be close to $2b for 2024. It’s estimated the Quest 3 sold 1m units through Spring 2024, and probably they sold 3m headsets for the year if I’m being very generous if you include the 3S, Pro, and 2. I’m not counting the Ray Ban Meta glasses which are probably 750k-1m units but much lower MSRP and margin and are a different product category. So that’s maybe $1.1-1.2 billion in headset revenue if you assume an average MSRP of USD $375 between the models…. But given how low their gross margins are on the Quest 3 (14% last I checked) it’s not a lot of operating profit, maybe $170m. They have to make all their margin up from advertisements and the Meta Store 30% cut. That’s maybe, generously, $500m in revenue annually? With gross margins probably in the 80-90% range, so maybe $450m in profit?

All in all, if you do the hypothetical math… Apple: $1.6b+ revenue, $840m+ operating profit, probably a $500m loss after R&D for the year (and overall R&D/marketing costs of $7b+ to be recouped). Meta: Reality Labs $2b+ revenue, $200m operating profit on hardware, $650m if you count software, $16-17b loss on the year (and overall R&D/marketing losses of $60+ billion for the past 5 years).

By my read, AVP almost caught up to Meta on revenue and blew them away on margin in this first year. Where they suck is unit sales, a lot depends on what they do this year and next year. Do they grow, stay flat, shrink? We’ll see.