The metaverse offers the promise of a technological revolution unlike anything society has seen since the dawn of the internet. It describes a collection of virtual worlds built by different companies and individuals, designed to change the way we connect socially and professionally.
The value of this opportunity is subject to wide-ranging estimates, but they have one thing in common: they're measured in trillions of dollars.
Social-media camera company Snap (SNAP 1.78%) is developing an iteration of the metaverse that differs from some of its larger competitors, and it could result in the company taking a leadership position in the industry over the long term.
In fact, one Wall Street investment bank thinks Snap stock could soar 160% from here.
Image source: Getty Images.
A unique twist on the metaverse
Snap is the parent company of Snapchat, a popular social media platform with a focus on camera technology. Like its key competitor, Meta Platforms, Snap is turning its attention to the next generation of social networking.
The industry is still new, but the metaverse is typically imagined as a virtual reality experience, accessible through fully immersive headsets. Meta Platforms has taken that approach through its ownership of Oculus, a multi-billion dollar manufacturer of virtual reality headsets.
But Snap is taking the metaverse in a different direction. It's focusing on augmented reality, which uses wearable technology to project digital experiences into the user's vision as they go through daily life. The goal is to blend virtual reality with the physical world to enhance everyday interactions with our normal surroundings. This has significant benefits over using virtual reality headsets, which are physically more restrictive.
Snap has designed a pair of wearable glasses called Spectacles to bring its augmented reality vision to life. They can be worn just about anywhere, and Snap thinks this is important for fostering human interaction. Since the dawn of social media over a decade ago, there have been criticisms about the way the industry causes feelings of isolation among its users, and therefore, this is a welcome focus on user wellbeing from Snap.
But additionally, a wearable technology that can be used anywhere will likely be more popular among users, leading to greater levels of adoption and therefore a greater financial benefit for Snap.
Powerful financial growth
As a social media company, Snap has always lived in the shadow of competing products like Facebook and Instagram (which are owned by Meta Platforms). From a valuation standpoint, Meta Platforms' $600 billion market capitalization is 10 times the size of Snap's. But in the recent fourth quarter of 2021, Snap revealed a stellar financial performance while Meta disappointed investors.
Apple and Alphabet's Google have made changes to their privacy rules, which have affected the way social media platforms target users for advertising purposes. It has been tricky to navigate, but Snap appears to have figured out a solution quickly, whereas Meta is still struggling. It's a rare occasion where Snap has one-upped its largest competitor.
For the full-year 2021 Snap generated $4.1 billion in revenue, which was an increase of 64% compared to 2020. That was a growth acceleration compared to the 46% rate between 2019 and 2020. The company also ended the year with its highest-ever daily active user count of 300 million.
Profitability is an area where Snap has historically struggled, but in the fourth quarter, it delivered its first-ever quarterly profit both under generally accepted accounting principles (GAAP) and on a non-GAAP (adjusted) basis. For the full year, it also continued to narrow its annual net loss, which could pave the way for positive earnings per share on a yearly basis sooner rather than later.
Wall Street is on board
According to Bloomberg Intelligence, the metaverse industry could be worth $800 billion by 2024 with a 13.1% compound annual growth rate (CAGR). That places the opportunity at $1.6 trillion by 2030. But that pales in comparison to an estimate by one venture capital firm, which thinks the metaverse could be worth up to $30 trillion in the next decade.
That gives Snap a potential growth opportunity unlike anything it has seen before, especially if its augmented reality approach is favored by consumers above typical virtual reality experiences.
Wall Street investment bank Credit Suisse is betting on the company, attributing a $93 price target to Snap stock, a 160% upside from where it trades as of this writing.
With revenue soaring, profitability potentially around the corner, and a unique approach to the metaverse, Credit Suisse's price target might even be conservative over the long term.
