If there's one thing investors have learned about technology over the last two decades, it's that it continues to grow at an accelerating pace. In just 17 years, social media platform Facebook went from an idea in a university dorm room to a tech conglomerate now trading under the Meta Platforms (META +0.58%) banner, which (for a short time) had a market valuation exceeding $1 trillion in 2021.
Meta's stock price has declined by about 58% from its all-time high a year ago amid the broader sell-off in the technology sector, but the company is keenly focused on its long-term future. It believes the metaverse will be the next generation of social and professional networking, and it's investing aggressively in building a leadership position in the emerging industry.
Estimates about the potential value of this opportunity are wide-ranging, but many of them follow one consistent theme: It could be measured in trillions of dollars by the year 2030. Here's why investors should own Meta Platforms stock to capture some of that value.
Image source: Getty Images.
The metaverse is rapidly taking shape
Many pundits are skeptical about life inside a virtual world, and there are some valid points to consider. These include its ability to sufficiently replace real human interaction and the willingness of consumers to spend money on digital goods. But still, building immersive virtual experiences feels like the natural path for technology given how much time people already spend online through various devices.
Smartphones and computers -- as they exist today -- allow the user to consume content but are fairly limited in capability when it comes to driving interaction. The metaverse, which will be accessible through a wearable headset, will theoretically give the user a feeling of presence in those experiences similar to standing in a room with another person. It will facilitate social conversations, gatherings, and even professional collaboration.
The latter is one angle Meta is exploring with its Project Cambria mixed-reality headset, which allows the user to observe the physical world around them while having digital enhancements beamed into their vision, in addition to having full virtual reality capabilities. Cambria could become a viable replacement for the typical office workstation because it will support all the functionality of a computer, without the need for employees to be confined to their desks.
This next-generation headset is set to hit the market in October, and it may feature revolutionary eye and facial tracking technology that would allow the wearer to translate their real-life expressions onto their digital avatar when interacting with other metaverse users. It would certainly help to create the feeling of presence mentioned above.
Meta's metaverse bet is now in the tens of billions of dollars
Meta Platforms conducts all of its metaverse research and development under its Reality Labs subsidiary, which makes it very easy for investors to track how much the company is spending on the project. The Reality Labs segment reported a loss of just over $10 billion in 2021, and in the first six months of 2022, it reported losing a further $5.7 billion.
Those are eye-watering amounts of money, and investors should know that some of that spending could also be considered as an investment in the future. Likewise, to put things into perspective, the $5.7 billion loss in 2022 so far has equaled just 10% of Meta's total $56.7 billion in revenue over the period. Not to mention, the company is profitable and still managed to deliver $14.1 billion in net income overall in the first half of 2022.
However, there's no doubt Reality Labs is starting to put a dent in that bottom line given Meta's net income was $19.8 billion at the same time last year, which is one reason investors have sold its stock so heavily of late.
NASDAQ: META
Key Data Points
But it could pay off in a big way
Not only are the Reality Labs losses a relatively small part of Meta's total revenue, but they're also a drop in the bucket compared to what estimates suggest the metaverse might be worth by the end of the current decade.
According to Precedence Research, the metaverse was already worth $40 billion in 2021. But it's set to grow by 50% every single year until 2030, where the firm believes it will top $1.6 trillion in annual value. Similarly, a projection by Bloomberg Intelligence pegs the opportunity at around the same level. But a prediction by venture capital firm Epyllion eclipses the rest; it thinks the metaverse could generate up to $30 trillion in value over the next 10 years.
Sure, those targets all point to major gains in the long term, so why buy Meta Platforms stock now? Because the company has a portfolio of incredible assets like Facebook, Instagram, and WhatsApp, which are used by over 3.6 billion people every month -- or nearly half the population of the entire planet. Plus, based on Meta's $12.07 in trailing-12-month earnings per share (profit), its stock trades at a paltry price-to-earnings ratio of just 13.2.
That's a significant discount to the rest of the tech sector right now, represented by the average 24.8 P/E ratio of the stocks in the Nasdaq-100 index. With such a significant opportunity looming in the metaverse, this could be a great time for investors to accumulate Meta Platforms stock while it's so heavily beaten down.
