Social media and tech giant Meta Platforms (META +0.28%) has been known for expanding its business in many ways, pursuing various opportunities. The next big opportunity it is reportedly eyeing is prediction markets, which have been one of the hottest new trends in recent years, with people making bets on just about any event.
According to reports, Meta Platforms is working on a prediction markets platform. Could this be a game changer for its business, or is this just another example of the social media company looking to hop on the latest trend?
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Why the move could make sense for Meta
The app Meta Platforms is working on is reportedly known internally as "Arena," but may have a different name if and when it launches. While it would look to tap into Meta's massive user base on its social media platforms, the app would be separate from them. In prediction markets, the more people placing bets, the greater the interest may be, as there are more types of event contracts to bet on, and thus, Meta would have a big advantage over other companies in the space.
The opportunity is a potentially massive one, with the investment firm Bernstein projecting that by the end of the decade, prediction market volumes will top $1 trillion. But what may impede that is regulation, as there have been growing concerns about people trading and making bets with insider information. Building trust on any such platform would be key. At the same time, competition in prediction markets is growing, with many companies looking to get a slice of the pie. But with Meta having billions of active daily users, it could be well-positioned to succeed.
NASDAQ: META
Key Data Points
Does this make Meta Platforms stock a better buy?
Over the years, Meta has pursued many opportunities, but not all have paid off simply because it has a large user base. People may use Facebook and Instagram regularly, but that doesn't guarantee they'll pivot to other platforms it creates.
Although getting into prediction markets is a good opportunity for the business, I'd hesitate to call it a game changer for Meta. It could take years for any such app to result in significant growth for the business, and even then, it's not a sure thing given the obstacles that the prediction markets industry faces. For a company that generated more than $56 billion in revenue in its most recent quarter, it would take a lot to move the needle and have a significant impact on its financials. Meta social media apps and the ad revenue they generate will continue to be its bread and butter for the foreseeable future.
The good news is that with the stock trading at just 18 times its estimated future profits (based on analyst expectations), it offers some good value right now, and could be a good buy for the long run, regardless of what happens with its latest venture.
