Meta Platforms (META 0.14%), the tech giant formerly known as Facebook, is often considered a top play on the growing metaverse, which could eventually blur the lines between our physical and digital worlds with virtual reality and augmented reality platforms.
Meta enjoys a first-mover's advantage in this space through Oculus, the virtual reality company it acquired in 2014. Oculus' latest VR device, the Quest 2, reportedly topped ten million shipments last year to become the world's most popular stand-alone VR headset by a wide margin.
That number likely climbed even higher during the holidays, and Meta is capitalizing on that growth to expand Horizon Worlds, a new VR world that enables Quest owners to interact with each other. Those interactions could expand Meta's social networking business far beyond Facebook, Instagram, and WhatsApp to establish a new metaverse-based social platform.
Image source: Oculus.
Those long-term plans sound promising, but Meta's metaverse ambitions still face near-term growing pains. Competition, regulations, and the physical constraints of VR headsets could all prevent the company from transforming Horizon Worlds into a mainstream VR social network.
Two recent developments -- which can be interpreted as a green flag and a red flag, respectively -- highlight those challenges fairly well.
The green flag: Apple's rumored delay
Meta's most formidable competitor in the metaverse hardware market could eventually be Apple (AAPL 0.51%), which has reportedly been developing its own AR or mixed reality headset for several years.
However, a recent Bloomberg report claims the device, which had widely been expected to arrive in 2022, could be delayed to 2023 as Apple grapples with a wide range of hardware and software challenges.
Apple's upcoming headset won't directly compete against the Oculus Quest, but it could go head-to-head against Facebook's Ray-Ban Stories, a pair of smartglasses that enables users to easily capture photos and videos. Apple's headset could also attract a lot more support from third-party app developers than the Oculus Quest, which could pave the way toward more practical applications than the game-oriented Quest. That ecosystem split could empower Apple, rather than Meta, to shape the future of the metaverse.
That's why Apple's rumored setback is a green flag for Meta: It gives it another year to sell additional Quest 2 headsets, introduce Horizon Worlds to more users, launch more metaverse experiences, and gear up for its rumored launch of the Quest 3 in late 2023.
The red flag: The FTC comes for Oculus
The Federal Trade Commission (FTC), which has been trying to force Meta to divest Instagram and WhatsApp with an antitrust lawsuit, recently set its sights on Oculus through another probe with the help of several states.
The FTC and a group of states led by New York are currently investigating Oculus' pricing strategies and its app store policies for third-party software companies. It's unclear if these investigations will lead to antitrust lawsuits, but they indicate the regulators are paying very close attention to Meta's dominance of the VR space and its metaverse ambitions.
That scrutiny should be considered a red flag for Meta, because it indicates the FTC still wants to break the bonds between Facebook, Instagram, WhatsApp, and Oculus. If the ties between those four platforms (which serve 3.58 billion people each month) are severed, Meta could struggle to transform Horizon Worlds into a metaverse-based successor for its older social networking apps.
How will these developments affect Meta?
Meta's rebranding shifted the public focus away from the controversies regarding its targeted ads, privacy issues, and the proliferation of fake news and hate speech across its networks. However, Meta still generates nearly all of its revenue from Facebook and Instagram's targeted ads instead of Oculus.
Therefore, investors should still focus on Meta's near-term challenges -- including Apple's privacy changes on iOS and the regulatory headwinds for its core advertising business -- instead of fretting over its metaverse plans.
But over the long term, Meta's metaverse plans could still enable it to create and dominate a new computing platform -- just as it did with social networks over the past decade.
