Meta Platforms (META -1.73%), home of Facebook, Instagram, and WhatsApp, will have serious competition in the market for augmented-reality and virtual-reality (AR/VR) headsets from Apple's (AAPL 0.06%) Vision Pro next year.
But Meta isn't sitting idly by waiting to see what will happen. CEO Mark Zuckerberg recently hosted its Connect conference, unveiling a few more details on the upcoming Quest 3 headset.
With the Quest 3's October launch beating the Vision Pro's release sometime in early 2024, and with a far cheaper price tag ($499, to Vision Pro's $3,499), is Meta a better AR/VR stock than mighty Apple right now?
Both tech giants are far from perfect
Before delving into the uncertain future of AR/VR (or as Apple calls it, spatial computing), let's acknowledge that neither of these tech giants are firing on all cylinders. For Meta, it's still dealing with a downturn in digital advertising. This was brought on first by Apple's own restriction on consumer data sharing across its devices a couple of years ago, followed by the bear market and economic worries. Advertising is often the first expense to get cut when economic storm clouds appear.
As for Apple, it's dealing with aftereffects of the height of the pandemic. The consumer electronics spending boom came to an end in 2022, and sales of smartphones, laptops, and PCs remain down sharply from all-time peaks. The company has fared far better overall than its PC and smartphone peers, but it's nonetheless dealing with sales growth that's sluggish at best.
Data by YCharts. TTM = trailing 12 months.
The next computing frontier
Could AR/VR/spatial computing pull Meta and Apple out of their slumps? Not likely. This is a long-term bet on the future of information technology, a battle for supremacy in a market that by and large doesn't exist yet. Meta and Apple are both trying to drum up interest in these next-gen devices, and as it often is with computing tech, the plan of attack to increase adoption of new fancy gear is to make it fun.
For Meta, that has meant gaming as well as the metaverse, although it has backed off that latter term evoking thoughts of total immersion in the digital world. At the Connect conference, Zuckerberg announced new features for the Quest 3, including the launch of popular gaming app Roblox on the devices (Apple has scored Disney content for its Vision Pro).
Quest 3 will also come with six months of a VR game subscription and will support Meta's new generative AI-powered media creation tools, which can handle things like making custom stickers used in chats with friends.
As a bonus, Meta also announced its newest smart-glasses partnership with Ray-Ban, featuring better audio and cameras, the ability to livestream video to Facebook and Instagram, and an on-device AI assistant.
Meta said it will also divulge a new Meta Quest for Business suite of apps later on this year once the Quest 3 is out in the market. But the strategy for now is clearly mainstream adoption via games and social media features.
Meta's "year of efficiency" to extend into 2024?
For Meta, the Quest 3 could be a pillar of Zuckerberg's declared "year of efficiency" for 2023 and beyond. After runaway expenses during the pandemic, Meta is controlling costs to boost its profit margins. Quest 3 could be an important part of this.
Apple doesn't divulge the costs of developing its Vision Pro and spatial computing platform. Meta does. It calls the segment Reality Labs, or simply RL, and many shareholders (and Meta critics) have decried the steep losses it has been incurring.
|
Reality Labs Financials |
First Half 2023 |
First Half 2022 |
|---|---|---|
|
Revenue |
$616 million |
$1.15 billion |
|
Operating income (loss) |
($7.73 billion) |
($5.77 billion) |
Data source: Meta.
Clearly, Meta's RL segment has been even less efficient as of late than it was last year. Flagging sales of previous-gen Quest 2 headsets and ongoing development of Quest 3 and those new Ray-Bans have been eating up a couple of extra billion bucks.
But with Quest 3 now looming, perhaps an uptick in RL revenue and lower operating losses will be in the cards late in 2023 and into 2024. That could do wonders for Zuckerberg's "year of efficiency" already in effect for the Meta bread-and-butter social media business. Up to a billion dollars per quarter in reduced RL operating losses would most certainly have a big impact on Meta's bottom line.
Data by YCharts.
Meanwhile, Apple's financial benefit from Vision Pro is a bit more of a mystery at this point. Meta stock currently trades for 23 times Wall Street's expectations for 2023 earnings per share (EPS), and 18 times 2024 expected EPS. Apple trades for 29 and 26 times expected 2023 and 2024 EPS, respectively. I thus call Meta the better stock right now, with possible upside for the company if its Quest 3 and related AR/VR devices and services are received favorably by consumers.
