CEO Mark Zuckerberg's massive bet on the metaverse initially seemed like a terrible idea. Only a year after he announced the company's plan to change its name from Facebook to Meta Platforms (META +1.24%) at Connect 2021, the stock plummeted 72% to $88.09.
In addition to threats from TikTok to its social media dominance and a terrible economy, investors were heavily concerned about the enormous potential financial losses associated with the metaverse concept. For example, during the first quarter of 2023, Meta's Reality Labs division incurred a loss of $4 billion. Given that the metaverse concept is still in its nascent stages, it seems unlikely that Reality Labs will be able to curtail its losses anytime soon.
Although the company's move to build virtual worlds is precarious, it could turn out that Zuckerberg's pivot toward the metaverse could be his best decision. Here's why.
NASDAQ: META
Key Data Points
A bold and visionary decision
Zuckerberg's decision to build the metaverse is a bold move that showcases his forward-thinking and innovative leadership style. The company aims to create virtual worlds where users can connect, work, shop, play, and learn through its platform.
Here are some of the critical elements of its metaverse strategy:
- Hardware: Meta Platforms is developing various hardware products for the metaverse, including virtual reality (VR) headsets, augmented reality (AR) glasses, and haptic gloves.
- Software: The company created Spark AR, which developers can use to create AR content, and Horizon Worlds and Horizon Workrooms, which people can use to experience virtual worlds.
- Infrastructure: It is investing in the infrastructure needed to support the metaverse, including data centers and network capacity.
- Partnerships: It is partnering with other companies to develop open standards for the metaverse, including Microsoft, Epic Games, and Nvidia.
Should the company evolve from a first mover in the early stages of the technology to the leader as the metaverse matures, it could claim an overwhelming competitive edge in a massive market. Various analysts have provided estimates for the market's size in 2030 that range from roughly $700 billion to $5 trillion.
What is the metaverse?
When Zuckerberg first presented his idea of what the metaverse would look like, it turned out to be a big swing and a miss. The company's early 2022 commercials for the metaverse showed people playing games, attending concerts, and socializing in virtual worlds that bordered on silly. Many people criticized these commercials, with some arguing that they were unrealistic and that the metaverse would never be as exciting as portrayed in the commercials.
These commercials also failed to excite Gen Z, the intended audience. According to Piper Sandler's 2023 Taking Stock With Teens Survey, teens have a divided interest in the metaverse. The survey shows that around 52% of them are either unsure about it or have no interest in purchasing a VR device to access it. In fact, only 7% of teens are interested in the metaverse and plan to buy a VR device.
There are a few possible reasons for this lack of excitement. One is that teens are not interested in the metaverse. They may feel it is a gimmick or does not offer anything they cannot already get from other forms of entertainment. Another possibility is that teens are concerned about the privacy and security implications of the metaverse. They may worry about how Meta will use their data or who can access it. Finally, some teens may lack the financial means to purchase a VR device.
Whatever the reason, it is clear that the metaverse has not yet captured the imagination of Gen Z. If Meta intends to attract this demographic, it needs to address teens' concerns and offer something exclusive that they cannot find elsewhere.
Seeing the poor response to the initial way it presented the metaverse, Meta started a new ad campaign focused on real-world applications. It also directed the advertising more toward adults. Management titled this ad campaign, "The Metaverse May Be Virtual, But the Impact Will Be Real."
These newer commercials have toned down the fantasy aspects and, in an apparent attempt to appeal to a broader audience, started showing scenes like the metaverse helping firefighters move more quickly through a burning house to save lives, assisting doctors in visualizing a patient's most recent scan to help speed up decision making in the emergency room, helping students take field trips to different places in history, and supporting worker-related activities like collaboration efforts, virtual meetings, and learning new skills.
The metaverse is still in its early stages of development, and there is much uncertainty about what it will ultimately become. So, although its metaverse investment has high upside potential, Meta is investing in a technology that is extremely high-risk. It is a high-stakes bet that is not for the faint of heart.
A great way to invest in the metaverse
There are a few reasons why Meta is the best way to invest in this new technology. First, it is one of the leading companies developing the technology. It has invested heavily in VR and AR technologies and has many metaverse-related products and services in development.
Second, it has over 3.02 billion daily active users on its social media platforms, which could give it a significant advantage in gaining metaverse users.
Third, Meta has a well-known brand worldwide, which could help it attract users to its metaverse platform.
Finally, the company has $37.4 billion in cash and marketable securities on the balance sheet and can afford to invest in the development of the metaverse.
The metaverse is a speculative investment by Zuckerberg that, if it pans out, could eventually catapult Meta to the world's most valuable company. If you believe in the high upside of augmented and virtual reality, you should pick up a few shares.
