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This Metaverse Stock Could Be an Excellent Buy Right Now

By Parkev Tatevosian, CFA – Dec 7, 2021 at 5:30AM

Key Points

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The metaverse is gaining popularity with consumers and investors alike as its potential becomes apparent.

If you are not already aware, the metaverse is a place where people can interact with each other and the environment virtually. It allows for a more robust social interaction compared to how people typically interact online right now. 

That possibility has the company formerly known as Facebook excited. Indeed, the company changed its name to Meta Platforms (META -1.54%) and announced a significant investment in time and resources in a shift to become a leader in the metaverse. Let's look at why this metaverse stock could be an excellent buy right now. 

A person on their computer.

Image source: Getty Images.

Meta Platforms to spend billions building out the metaverse 

In a bold announcement at the company's third-quarter conference call, Meta Platforms founder and CEO Mark Zuckerberg had this to say, "Our goal is to help the metaverse reach a billion people and hundreds of billions of dollars of digital commerce this decade. Strategically, helping to shape the next platform should also reduce our dependence on delivering our services through competitors."

Reaching a billion users might be unrealistic for some businesses, but not for Meta Platforms. That's because it has already reached that goal three times over in its social media segment. At the end of the third quarter, Facebook boasted 3.5 billion monthly active users across its family of apps including Instagram and WhatsApp. . What's more, it's still growing, adding 370 million users from the same time last year.

Because its apps are free to join and to use, Meta makes money by showing advertisements to folks who open it and browse the contents. That revenue is increasing rapidly as marketers appreciate the broad swath of people they can reach on Meta's family of apps. Over the last decade, its sales have grown at a compounded annual rate of 45.8% and company revenue increased from $71 billion in 2019 to $86 billion in 2020. That generates billions of dollars the company can invest to transition to a metaverse company.

To better inform shareholders on its progress and investments in the change, Meta will start reporting two distinct business segments: Family of apps and Facebook reality labs (FRL). The latter will include the spending toward the metaverse. Already, the company has laid out its massive plans, saying the FRL will hit operating income to the tune of $10 billion this year and even more in future years.

An excellent metaverse business at a fair price 

Impressively, Meta's revenues are flowing to the bottom line at a healthy rate. Earnings per share (EPS) have increased at a compounded annual rate of 50% in the last 10 years. Over that same time, the company has only had one year where its operating profit margin was below 30%. It's a lucrative business model; people willingly share information about themselves and what they like for free. Advertisers like that they can reach folks who have already revealed they could be interested in one or more of their products.

Fortunately for investors, you can buy this excellent metaverse stock at a relatively low price. Meta Platforms is trading at a price-to-free cash flow ratio of 25. That's near the lowest levels it has sold for in the last five years if you exclude the crash at the pandemic's onset. Overall I'd say to keep an eye out on the metaverse stock and its growth over the next few years.

Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Parkev Tatevosian has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Meta Platforms, Inc. The Motley Fool has a disclosure policy.

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