Meta Platforms (META -3.58%) has led the social media industry for over 10 years with its flagship platform, Facebook, in addition to its acquired assets Instagram and WhatsApp. Over 3.6 billion people engage with Meta's platforms every month, or nearly half the population of the entire planet.
That makes the company a prime candidate to lead the world into the next phase of social and professional networking: the metaverse. It's a collection of virtual worlds accessible by using wearable technology like a headset or glasses, and it's set to be a multitrillion-dollar opportunity over the next decade (and beyond).
Meta Platforms' stock is heavily beaten down due to the broader tech sell-off and some internal challenges. However, Wall Street thinks there's significant potential upside ahead.
Meta has been navigating tough times
Meta Platforms has had an incredible run since it listed as a public company in 2012 with a debut share price of $38. It reached a lofty $384 per share in September 2021, so the company's IPO backers were sitting pretty on a gain of more than 10 times their initial investment (assuming they'd held on).
Meta did a stellar job leading what was a brand-new social media industry, especially with the explosion of new technologies that would see most social media usage switch from computers to mobile devices. The sector's evolution has been swift, with notable contributions from the company's key competitors, but Meta has adapted and thrived each step of the way.
But the company does face growth challenges now that its user base has become so large. Plus, interventions by third parties like Apple (AAPL -1.22%) have unsettled Meta's business. Apple has changed its approach to privacy by empowering iPhone device customers to choose which apps they share their data with, so Meta is having a hard time tracking its social media users with the same accuracy as before.
Meta anticipates it will take a $10 billion hit to its revenue in 2022 because of this, as it can't target users to the same degree in order to sell advertising to its business customers. It's part of the reason Meta's stock has plunged 55% from its all-time high to $170 today.
But as the most well-resourced social media player in the game, finding a solution to this challenge is likely just a matter of time.
It's a long-term game for Meta
The technology sector is littered with high-growth companies, but the best of them make high-profit businesses out of their platforms. Meta has expanded its revenue from $5 billion in 2012 to $117 billion in 2021, and its earnings per share have been in positive territory every single year of that journey.
Meta's aforementioned challenges are likely to result in an earnings dip for the full 2022 year, according to analysts, but it's also partly due to the company's investments in the metaverse.
Meta's Reality Labs segment is responsible for developing the virtual world, and it burned $10 billion in 2021 doing so. It's on track to exceed that number in 2022 after losing $2.9 billion in the first quarter alone. This will continue to hit the company's bottom line, but there's already some tangible progress to show for it, including a brand new mixed-reality wearable headset called Project Cambria.
Cambria is designed to fuse the wearer's physical world with the virtual one by beaming digital enhancements into their vision, and it could change the way employees work in office jobs forever. It has the capability to replace laptop computers and even entire workstations, as the wearer can view and switch between multiple virtual screens with the single piece of hardware.
The opportunity for Meta could be staggering in size
It's tough to predict just how valuable the metaverse could be because it's such a broad opportunity in both hardware and software, but some pundits have given it a shot. The estimates vary widely, from $1.6 trillion annually by 2030 to $30 trillion over the next decade.
The economy inside the metaverse could be worth a fortune by itself. Meta CEO Mark Zuckerberg envisions a billion people in the metaverse spending hundreds of dollars each on digital goods and services to improve their personal avatars.
With the most active social media platforms in the world, Meta is perfectly positioned to lead the race. And by developing both the metaverse itself and the hardware, it's more likely to avoid disruptive changes from third parties like Apple in the future.
But even in the near term, Wall Street is very bullish on Meta Platforms' stock. Of the 53 analysts that cover it, just one recommends selling, with 34 analysts rating it a buy. The average price target is $283.54 over the next 12 to 18 months, which represents 66% upside from where Meta shares trade today.
But given the sheer size of the metaverse opportunity, investors might be better off buying the stock with a five- to 10-year time horizon for even stronger returns.
