Meta Is Returning to China. It’s a Rare Win for Zuckerberg’s Metaverse Push.

Meta
Platforms is returning to China, 14 years after Facebook was shut out of the country. This time, Meta will be looking to attract Chinese consumers to its virtual-reality technology rather than its social-media platforms. 

Meta
(ticker: META) has reached a preliminary agreement to sell a lower-priced version of its VR headset via a partnership with China’s
Tencent Holdings
(TCEHY), The Wall Street Journal reported late Thursday, citing people familiar with the matter. 

Meta shares were up 0.7% in early trading on Friday. The company didn’t immediately respond to a request for comment on the report.

If it won’t quite make up for Facebook being blocked in China since 2009—Instagram and WhatsApp are also prohibited—the deal is a potential positive for Mark Zuckerberg’s investment in the metaverse and its vision of a world of virtual interactions.

Zuckerberg has said Meta’s priority is now artificial-intelligence technology. But the company’s Reality Labs division, which focuses on the metaverse, still lost $11.47 billion in the first three quarters of the year. Its losses are expected to widen in 2024. Adding a significant consumer market could help allay concerns about the division’s spending.

The market remains largely skeptical about Meta’s metaverse ambitions. The global market for AR/VR headsets was 9 million units in 2022, down 20% from the previous year, implying a total market of $4 billion, according to a Morgan Stanley analysis.

In the Chinese market, downinated by ByteDance and DPVR, shipments of extended-reality headsets came to more than 1.1 million units in 2022, according to Counterpoint Research. But shipments fell by 56% in the first half of 2023 compared with the same period a year earlier as Chinese consumers have pulled back on spending.

Meta recently started shipping its Quest 3 virtual-reality headset at $499. The launch comes just months ahead of the expected launch of Apple‘s (ticker: AAPL) first hardware entrant into the VR segment, the Vision Pro, which is scheduled to ship early in 2024 at a significantly higher price.

Meta’s headset for the Chinese market will use cheaper lenses than the Quest 3 model. Sales are set to begin late next year. Meta will take a bigger share of revenue from device sales while giving Tencent a bigger slice of content-and-services revenue, according to the Journal.

Write to Adam Clark at [email protected]

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