With all the attention going to artificial intelligence lately, many investors have probably forgotten about some of the hyped-up technologies from years past. One such fad was the metaverse.
However, plenty of businesses are still investing heavily in this area in hopes of a bright future. So some investors may be looking at places to allocate capital to boost their portfolio returns.
If you're looking for a monster metaverse stock to buy for the long haul, look no further than Meta Platforms (META +0.22%).
Burning billions in cash
Meta Platforms dubbed its metaverse-focused unit Reality Labs. That segment includes hardware products like the Quest headset and Ray-Ban smart sunglasses, as well as a virtual 3D interactive space known as Horizon Worlds, where people can interact for work, gaming, and fitness, among other use cases.
Up to this point, Reality Labs has been a financial disappointment. In the first three quarters of 2023, the segment generated total revenue of just $825 million -- less than 1% of the company's top line. During that same nine-month stretch, Reality Labs posted a whopping $11.5 billion operating loss, and the flow of red ink is expected to accelerate.
"We expect operating losses to increase meaningfully year over year due to our ongoing product development efforts in AR/VR and our investments to further scale our ecosystem," CFO Susan Li said on the latest earnings call.
From an investor perspective, this likely looks like a huge waste of time, energy, resources, and talent. However, it's not hard to understand why CEO Mark Zuckerberg is so focused on this technology. He wants to create a new computing platform like PCs and smartphones. And if that effort is successful, it could be a huge financial boon for Meta.
Up to this point, Meta has had to play by the rules of the two leading mobile operating system owners -- Apple (iOS) and Alphabet (Android). But if its metaverse efforts work out according to plan, Meta could control the next major computing platform. And this could lead to more revenue-generating opportunities, particularly as they relate to digital advertising.
Some shareholders might think that Reality Labs should be shuttered, but it's hard to bet against Zuckerberg. He built one of the most successful businesses in about two decades. I think investors should at least give him the benefit of the doubt and have some patience here.
NASDAQ: META
Key Data Points
Depending on a lucrative cash cow
Most earlier-stage metaverse companies likely aren't generating positive net income. But this is where Meta Platforms stands out from the crowd.
In addition to its cash-burning Reality Labs division, Meta also has its "family of apps" segment, which includes the social media apps Facebook, Instagram, Messenger, WhatsApp, and Threads. Combined, those boasted a whopping 3.14 billion daily active users as of the end of Q3. Not only was that a gargantuan sum, but the metric was up 7% year over year. This gives me confidence that there's still growth to be had in Meta's social media business.
Through these apps, Meta has become one of the most important businesses in the world. And it's integral to how people connect and communicate with each other daily. This suggests that there's a strong chance that the company will continue to dominate in the social media space for many years.
In the third quarter of 2023, this division generated revenue of $33.9 billion, and its operating income of $17.5 billion was good for an incredible 40% margin. Thanks to the cash cow family of apps business, Meta can invest tens of billions of dollars a year into Reality Labs. That's not something that most of its metaverse rivals can afford to do.
And perhaps even more importantly, this favorable financial position allows Zuckerberg to really play the long game as he waits for his metaverse initiatives to play out. This is why I think Meta Platforms is the best stock to own to get exposure to this trend.
