Facebook (META 3.01%) is developing plans to enter the metaverse. In case you are unfamiliar, the metaverse is a virtual environment where people can interact with each other and their surroundings.
One company that will feel the direct impact of Facebook's decision is Roblox (RBLX 4.95%). It already operates a metaverse platform with millions of daily active users, but it's in jeopardy of losing out to Facebook. Still, the effects of Facebook's entry need not be adverse for Roblox as it could benefit from the increased attention on the metaverse.
Facebook is making a move
In Facebook's second-quarter conference call, CEO Mark Zuckerberg discussed how he's thinking about the metaverse: "In addition to being the next generation of the internet, the metaverse is also going to be the next chapter for us as a company. In the coming years, I expect people will transition from seeing us primarily as a social media company to seeing us as a metaverse company."
Roblox pales in size in comparison to Facebook. The Zuckerberg-led company has the resources to invest aggressively in building out its metaverse platform and withstand the lag time until the service starts generating profits. When Facebook CFO David Wehner was asked about the financial commitment it would be making, without giving a specific number, he responded by suggesting it would be in the billions.
In addition to the financial investment, Facebook has 3.5 billion monthly active users across its family of apps (Facebook, Instagram, Whatsapp, Messenger). Those are users it can nudge, through an email or an in-app notification, to join the company's newly developed metaverse platform (when it's ready). Facebook announced plans to hire 10,000 people in Europe to create the metaverse, so this might come sooner rather than later. Facebook is also planning a name change to reflect its renewed focus on the metaverse.
Not all bad for Roblox
Roblox is not necessarily doomed. The company has attracted 48.2 million daily active users, up 32% from the same time last year, and has an established platform with items and experiences its users enjoy. What's more, the company's user demographic skews toward younger ages, with over 50% of its users under 13. That could be a competitive moat that keeps Facebook from taking its customers. Many parents could be hesitant to allow their kids to join a Facebook-created metaverse.
Further, Roblox is an ad-free experience. The platform is free to join, and the company makes money by selling an in-game currency called Robux that players use to buy unique items and join exclusive experiences. Facebook has said advertising will be a meaningful part of its metaverse. So for users who like to avoid ads or parents who want to keep their kids away from advertisements, Roblox could be the metaverse of choice.
Facebook's entry into the metaverse business could shed light on the product. Billions of people worldwide who have never heard of or experienced a metaverse will come to know the platform. That could be good news for Roblox even if Facebook undoubtedly takes a larger share of the young industry's market. In essence, Facebook's entry will likely increase the growth rate of the metaverse industry -- probably turbocharge it. And if the industry gets bigger, Roblox will benefit. As mentioned earlier, Roblox has only 48.3 million daily active users, a small sum compared to the total number of people in the world with a connected device who could be potential customers.
Overall, the upside for Roblox, in a world where hundreds of millions (assuming 10% of folks within Facebook's family of apps choose to join) of people have a metaverse account, far outweighs the downside of potential daily active user losses to Facebook. In my view, Facebook's decision to develop a metaverse is good news for Roblox and its stock.