Some say the metaverse is the next big thing, akin to the internet in the 1990s or the smartphone in the 2000s. While the metaverse is still being built, it's not too soon to invest in the companies that are shaping its future. Let's take a look at two of the most prominent metaverse stocks: Meta Platforms (META -0.62%) and Roblox (RBLX 3.33%).
Meta: An ambitious vision with major hurdles
No company has wagered more on the metaverse than that which is formerly known as Facebook. In October 2021, the tech company took the telling step of rebranding itself as Meta. In a founder's letter, Mark Zuckerberg said that metaverse users will "be able to do almost anything you can imagine...[such as] teleport instantly as a hologram to be at the office without a commute, at a concert with friends, or in your parents' living room to catch up."
It's a big vision that comes at a steep cost. Meta reported fourth-quarter losses of $3.3 billion in its Reality Labs segment, which is the division tasked with turning Zuckerberg's vision of the metaverse into a reality. Total yearly losses for Reality Labs were $10 billion in 2021, and the company expects those losses to continue -- and perhaps accelerate -- in the near term.
What's more, the company is facing a steep uphill battle to ease fears about the metaverse, particularly when it comes to public trust. As seen in the chart below, a staggering 87% of U.S. adults have privacy concerns if Facebook (i.e., Meta) is a leader in the construction of the metaverse. Clearly, Meta faces an enormous public relations challenge to convince users that its version of the metaverse will safeguard individuals' data and privacy.
Roblox: Keeping the metaverse fun
In contrast to Meta, Roblox's vision of the metaverse is more lighthearted. Rather than striving to teleport someone into an office, Roblox is more likely to transport users into a castle. This more modest vision presents an obvious benefit: It is already up and running. Unlike Meta, which must build its vision of the metaverse from scratch, Roblox offers users free entry to an online, 3D world now.
The company partners with independent creators who build experiences for players to explore. Roblox generates revenue by selling Robux -- an in-game currency that allows players access to certain levels, skins, and items.
This particular model -- a sort of online sandbox that provides players with an ever-changing selection of role-playing adventures to experience with their real-life friends -- is particularly appealing to young people.
As noted above, 38% of 10- to 20-year-olds have played a metaverse-style game in the past six months. This figure decreases with age; only 4% of those over the age of 50 have recently used Roblox or a similar proto-metaverse platform. As I've noted before, Roblox's young user base is one of its best assets. As current Roblox players grow older and their disposable income increases, Roblox will have greater opportunities to generate revenue from advertising or in-game transactions.
I prefer Roblox to Meta
With over 1.93 billion daily active users worldwide at the end of 2021, Meta has a tremendous head start in the race to rule the metaverse. Roblox, in comparison, had 49.5 million daily active users as of fourth quarter 2021. But the player in the lead doesn't always win the race. The major distrust that adults have of Meta, especially in regards to the company's handling of personal data and privacy, is an enormous hurdle for the company to overcome as it works to build the metaverse.
Moreover, last year's $10 billion loss from Reality Labs is staggering. Roblox, on the other hand, currently has a market cap of $28.5 billion. It seems to me that Meta would have been wiser to have bought Roblox rather than building its own metaverse from scratch.
Roblox may not seem to have the most ambitious vision for the metaverse. In fact, some might consider it an underdog. But in this race, I'd rather put my money on the underdog.