As you may have heard, Meta announced Q3 earnings last week. Among other things, Meta Reality Labs’ (MRL) represented a $3.96 billion expense. There, the message to investors is to stick with Meta while it builds, and cements a central position within, computing’s next era.

Meanwhile, net losses are widening as MRL top-line revenue (mostly consisting of Quest 2 sales) declined in Q3 to $285 million. That’s down 49 percent from $558 million in Q3 2021 (year-over-year). It’s also down 37 percent from $452 million in Q2 2022 (quarter-over-quarter).

There’s a lot to be said about those declines (more on that in a bit). But our main question is how MRL Q3 revenue translates to Quest 2 unit sales. Equally meaningful, what’s the total installed base of cumulative Meta VR devices in market? That’s a key health indicator for VR.

Starting with Q3 units sold, what do Meta earnings tell us? This is an exercise we’ve done every quarter for several years, but with a different approach lately given Meta’s disclosures. We no longer have to rely on proxies such as reverse engineering Meta’s “other” revenue category.

Given that Meta now breaks out MRL revenue, this calculation can be more precise. Diving in, Reality Labs made $285 million in Q3, as noted. Based on Meta’s Q4 and 2021 FY disclosures in January, we’ve extrapolated that VR software (game and app sales) is about 23 percent of that.

With that, Q3 software revenue comes to $65.6 million*, making hardware $219.45 million. As we’ve estimated, headsets are about 92 percent of that, the rest being first-party accessories like head straps and face shields. That brings us to $201.9 million for Quest 2 sales.

Considering an average unit price of $429** this means that Meta sold approximately 471,000 Quest 2s in Q3. This is slightly off-pace with the 5.9 million units projected for full-year 2022 by our research arm, ARtillery Intelligence, which factors in the standard Q4 holiday surge.

**During Q3, Quest 2 base model (128GB) was $399 while the 256GB model was $499. This averages out at $449, but we’ve reduced the estimated hardware ARPU to $429 due to weighted sales for the base model (common for new hardware). Third-party reseller markups aren’t included.

So what does the above mean for Meta’s VR installed base? To estimate, we can go back to the results from last time we did the above exercise for Q2. At that time, the installed base was 9.829 million units. So with the above 471,000, it brings the cumulative total to 10.3 million.

If accurate, this means Meta has passed the 10-million milestone of in-market VR devices. That has been a key goal for Meta to stimulate VR’s flywheel effect. To be fair, others have estimated that Meta already passed this 10-million mark, but we stand by our projections.

Stepping back, why is 10 million important? According to Mark Zuckerberg, that’s the critical mass to jumpstart an ecosystem. A nine-digit sum attracts developers en masse. Content creation surges then attract more users, which further attract developers, and the flywheel spins…

But this milestone is overshadowed by MRL’s Q3 revenue declines, for which there are several reasons. One is macroeconomics and consumer spending. Discretionary spending is down and VR is certainly in that boat. Demand is further diminished by Quest 2’s July price hike.

In terms of MRL expenses, Meta positions it as a necessary investment for the company’s future. This requires two things: One is lots of investor patience (which is running thin). And two is a leadership structure that enables Zuckerberg’s unilateral control. Few companies can do this.

In the process, MRL has been painted in interweb punditry as an ill-timed passion project. But considering declining revenue to its core business, and the existential challenges from Apple’s app tracking transparency (ATT), now is precisely the right time to start building lifeboats.

Moreover, Meta’s investments in VR hardware and an operating system will make it a bonafide platform. That gives it vertical integration and less dependence on the uncertainties of piggybacking on others’ platforms (read: iOS and Android). Meta learned this lesson the hard way.

Meanwhile, amidst all the schadenfreude in the tech press, Meta continues to build for the long haul. MRL net losses are projected to widen in 2023, but the more important part is that it’s using today’s dollars to build tomorrow’s business. As always, the proof will be in the execution.

How Many VR Headsets Did Meta Sell in Q3? was originally published in AR/VR Journey: Augmented & Virtual Reality Magazine on Medium, where people are continuing the conversation by highlighting and responding to this story.