Why Facebook (Meta Platforms) is a mandatory metaverse stock in 2022Published by: 11.01.2022 10:56:35
The year 2022 is the year of the metaverse.
Searches for the term on Google have skyrocketed in the past three months after Mark Zuckerberg, CEO of Meta Platforms parent company Facebook (NASDAQ:FB), said he was rebranding to express his belief that the future of the company - and technology - is in the metaverse. The term refers to an internet-based virtual reality in which you interact as a three-dimensional character rather than with a mere screen.Zuckerberg isn't the only one betting on the metaverse. Interest in virtual worlds such as Decentraland is growing rapidly: its user base has increased tenfold in the past three months to 300,000 active monthly users. While the metaverse is not a new idea, the technology for it finally seems to exist, as does the interest in it and its usability, as evidenced by the booming market for non-functional tokens (NFTs) and the move to a remote economy during the pandemic.
Although there are many different ways to gain exposure in the metaverse, Meta Platforms are the stocks to own if you're interested in the three-dimensional internet. Here's why.
Facebook is the leader in virtual reality headsets
Virtual reality headsets are to the metaverse what a smartphone is to the mobile internet: It's a key piece of hardware you need to access it. Facebook bought VR headset maker Oculus for $2 billion in 2014, and it looks like that bet has finally paid off, as the social media giant is leading the way in VR headsets.
According to data from IDC, Facebook captured nearly two-thirds of the global VR headset market in the first quarter of 2021 and has been driving nearly all of the growth in the category. In other words, Oculus Quest is well positioned to become the iPhone of the metaverse, and Facebook has plenty of money to spend to maintain that first-mover advantage.
The data from the holiday season also confirms Oculus' momentum. It was the No. 1 app in both the Apple App Store and Google Play in the days after Christmas, with 1.3 million downloads from Dec. 21 to 27, according to Sensor Tower data. Assuming those numbers represent 1.3 million gifted tasks, demand for the headset is growing rapidly.
Facebook sype money to metaverse
The company surprised the market by renaming itself Meta Platforms, but the writing had been on the wall for months. In earnings calls, Zuckerberg regularly talked about Metaverse as the next major technology platform, touting the emergence of Oculus and Facebook's own VR/AR division, Facebook Reality Labs (FRL).Facebook said last year that it will spend at least $10 billion on FRL in 2021, and that number is likely to be significantly higher in 2022 and beyond. Most companies can't compete with that kind of war chest, and the company already has about 10,000 employees in that division, a huge number for a tech company.
Just as Amazon has leveraged its lead in cloud infrastructure with Amazon Web Services, Facebook seems poised to do the same in VR and augmented reality. With that kind of capital and focus on the metaverse, it will be hard to knock Facebook off its pedestal.
Facebook already has an established user base
Across its family of apps - which include Facebook, Instagram, WhatsApp and Messenger - Meta has more than 3 billion monthly users. While the first phase of the Metaverse is to build audience and engagement by selling millions of VR headsets, the next phase will likely be to reintroduce many of the same social networking features for functions like gaming, entertainment, learning and work that already exist on social media platforms like Facebook and Instagram.
Here, Meta has a clear advantage due to its built-in audience, as the millions of businesses that advertise on Facebook and Instagram are likely to follow eyeballs into the Metaverse, meaning Facebook already has a way to monetize virtual worlds beyond just selling headsets.
Again, a startup or even a tech giant like Apple won't be able to replicate this kind of digital ecosystem so easily.
Business in Metaverse is essentially free
The market has long been bearish when it comes to the future of Facebook. The stock has been consistently undervalued despite its growth rate, apparently due to the belief that the digital advertising market will slow, Facebook's poor reputation will eventually lead to its demise or that regulators will strangle the company.But after years of wringing their hands over such events, nothing of the sort has happened, and Facebook's growth continues to be remarkable for a company of its size. Revenue in the most recent quarter rose 35% to $29 billion and operating profit rose 30% to $10.4 billion.
Nearly all of that revenue came from advertising, meaning a share price-to-earnings ratio of just 23.4 doesn't account for potential growth from FRL or Oculus.This means that investors can buy Meta Platforms stock today and essentially get the metaverse business for free. If you're looking for exposure in the metaverse, buying Facebook's parent company will give you a giant, fast-growing, highly profitable advertising business that trades at a bargain price, and a leading VR headset brand attached to it.
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