With all the talk about artificial intelligence these days, investors might have forgotten about the metaverse, which was a hot technological trend a couple of years ago. Clearly, the interest has faded.
The metaverse is a collection of virtual worlds that individuals can "enter" to engage in various activities, whether for social, entertainment, or productivity purposes. It's hard to see the potential now, but some businesses are still focused on being at the forefront of this technology.
One such company is none other than social media powerhouse Meta Platforms (META 1.05%). It's certainly investing heavily toward its goal, with the possibility of there being huge rewards down the road.
I think it's a monster metaverse stock that investors should buy and hold for the long haul. Here's why.
A new computing platform
Founder and CEO Mark Zuckerberg made a splash when he realigned Meta into two key divisions, one of them focused exclusively on metaverse ambitions. The business sells AR/VR (augmented reality/virtual reality) headsets and sunglasses while also developing software like Horizon Worlds that provide use cases for the metaverse.
On the surface, this sounds like a tech mogul who is losing his head and just working on a passion project to pass the time. But I think Zuckerberg's focus on the metaverse is more calculated and we should give him a bit more credit.
History is full of new computing platforms, the most recent being the popularity of mobile devices. Zuckerberg is trying to position Meta to be the leader should the metaverse become that next big platform. This makes sense from both a financial and strategic perspective.
In the age of smartphones, Apple, with iOS, and Alphabet, with Android, control mobile operating systems, which gives them competitive power. Should the metaverse really take off in adoption, Meta Platforms could be the leading on-ramp service provider, and this could lead to massive revenue potential.
Of course, we are a long way from this becoming a reality. While Zuckerberg wants to reach 1 billion metaverse users, adoption has been slow. In the latest quarter (the third quarter of 2023, ended Sept. 30), revenue totaled just $210 million, representing less than 1% of the company's total. The segment has been a huge money loser, posting an operating loss of $11.5 billion in the first nine months of 2023 after losing $13.7 billion in all of 2022.
I'm sure many Meta bears are very skeptical about where Zuckerberg's attention is going these days. But this company is placing its bets where it deems appropriate to try and position it for long-term success.
Unlimited financial resources
What gives Meta a major advantage is that it has a ton of optionality to invest in new projects that might be characterized as having a lot of uncertainty but that might be necessary to keep the business ahead of the curve. The company has $61 billion of cash, cash equivalents, and marketable securities on its balance sheet. These financial resources provide fuel to support the metaverse push, an upper hand that smaller enterprises only wish they had.
And these stellar figures point to how lucrative the company's social media apps are, which still make up the crown jewel segment for Meta. Generating $33.9 billion of revenue and $17.5 billion of operating profit in Q3, Facebook, WhatsApp, Instagram, Messenger, and the newly launched Threads are the true stars of the show. The user base continues to grow even though it sits at nearly 4 billion monthly actives.
Once the economy gets back on solid footing and marketing executives have more positive outlooks, Meta will prove once again how successful of a business it can be when the market for digital advertising starts picking back up. Its popular apps draw so much attention, and they are still the main revenue driver.
At a forward price-to-earnings ratio of just 22.1, the stock is a no-brainer buy for those looking to find a safer way to get exposure to the potential of the metaverse.
