The metaverse describes a virtual world that has the potential to add a new dimension to the way we interact socially and the way we do business. The financial opportunities it could create are rivaled only by the dawn of the internet, and many large and small tech companies are placing their own unique spin on the concept.

Social media giants Snap (SNAP 0.65%) and Meta Platforms (META -0.43%) are prime examples, as the two rivals are taking completely different approaches to this opportunity. And the metaverse aside, both companies released their full-year 2021 earnings report in February, which offered some insights into their long-term potential.

Here's why both stocks have the potential to grow your money fivefold by the end of this decade, despite their differing strategies.

A person using a virtual reality headset while sitting in a cafe.

Image source: Getty Images.

1. The case for Meta Platforms

First, let's acknowledge the elephant in the room: Meta's stock has suffered a steep decline of 27.7% since it released its 2021 earnings report on Feb. 2. The company says the recent changes in privacy rules for smartphones issued by Apple and Alphabet could cost it up to $10 billion in 2022, and investors were also concerned by the $10 billion loss in its Reality Labs segment, which is responsible for building the metaverse. 

But when we arrive in the year 2030 and look back, these might turn out to be short-term issues that wound up delivering long-term gains. That's because the metaverse could be a $1.6 trillion opportunity by then, based on some estimates which indicate an $800 billion value in 2024, followed by a 13.1% compound annual growth rate over that time.

Meta's strategy for its virtual world might be similar to its strategy when building social media platforms. It could own the ecosystem, giving it pricing power over everything that happens within it. Meta believes its users would exist digitally as avatars, with the ability to "teleport" to different virtual experiences, and buy and sell digital goods within its metaverse.

Meta also owns Oculus, a virtual-reality headset maker. If Oculus' hardware becomes the primary method of accessing the company's metaverse, it means Meta would no longer be subjected to rule changes by third parties like Apple -- which takes a major risk off the table. 

From a mathematical perspective, Meta would need to grow its revenue and earnings per share by 23% each year for its stock to increase 400% between now and 2030. That's assuming its current price-to-earnings and price-to-sales multiples remain constant. 

Metric

2011

2021

CAGR

Revenue

$3.7 billion

$117.9 billion

41%

Earnings per share

$0.46

$13.77

40%

Data source: Meta Platforms. CAGR = Compound Annual Growth Rate.

Meta has a decade-long track record that suggests it could crush that mark, and as the metaverse opportunity grows, this stock could be a great place for your money. 

A person pointing to two arrows outperforming another arrow, with a cityscape below.

Image source: Getty Images.

2. The case for Snap

Snap, which is the parent company of popular social media platform Snapchat, had a different experience from Meta Platforms this earnings season. Its stock price has soared by 71.4% since its low point on Feb. 3, when it reported its 2021 results. The reason is simple: Snap says it has recovered more quickly than expected from the privacy changes that Meta is still struggling with, hinting that it's finally getting a win over its main competitor after years of living in Meta's shadow.

Meta is still 10 times the size of Snap by market valuation, but Snap has an interesting opportunity ahead of it thanks to its entirely different approach to the metaverse. Rather than focusing on virtual reality, which completely immerses the user, it's developing augmented reality. Where virtual reality renders the user's physical surroundings mostly irrelevant, augmented reality leverages them and combines the digital world with the real one. 

Snap has built its own glasses to facilitate this, called Spectacles, and they're designed to project digital experiences into the wearer's vision as they go about their daily life. Snap thinks this approach is better for the user's well-being because it fosters human engagement, and it also has the potential for greater adoption because it's far more practical.

Metric

2016

2021

CAGR

Revenue

$404 million

$4.1 billion

59%

Data source: Snap Inc. CAGR = Compound annual growth rate.

Snap isn't a profitable company yet on a full-year basis, but it did just report its first-ever profitable quarter in the fourth quarter. However, analysts expect 2022 could be the first full year investors see earnings per share, so it might be a great time to get involved. 

But from a revenue perspective, Snap is growing at a rate much faster than the 23% it needs for a fivefold return by 2030, assuming its current price-to-sales ratio remains constant. Its stock offers a promising opportunity for investors willing to hold until the end of the decade, especially if they're looking for exposure to the metaverse.