Shares of social-connectivity company Meta Platforms (FB) is in a bit of a weird spot right now, with a fresh new face (pardon the pun) and a stock ticker symbol that’s yet to be updated (it’s due sometime this quarter). What’s even more strange is the firm is definitely more of a social-media powerhouse than a metaverse firm at this point. Indeed, the skeptics who slammed the firm for distracting people from the real concerns at hand may have a strong case.
That said, the metaverse is coming, but the billion-dollar question remains whether Meta Platforms will play as big a role in it as its new company name suggests. Indeed, Meta has shined a very bright light on the concept of a metaverse with its name change and Zuckerberg-led presentation that raised a lot of eyebrows.
Enter the Metaverse: Where the Risks and Rewards Are Massive
The metaverse still seems far-fetched to non-gamers. A place to work and socialize (and place ads everywhere) it may be, but there’s a lot of advancement that needs to happen before new virtual worlds are ready for the mainstream.
Most notably, VR-induced nausea could limit the success and adoption of the metaverse over the near term. Indeed, it can be quite a sickening experience for your stomach to walk around in a virtual meeting space for too long a duration. Until “VR sickness” can be solved or one’s “VR legs” can be developed at a quicker, less nauseating rate, the sooner the metaverse will be ready for prime time.
Currently, Meta’s Oculus line of hardware is starting to pick up a bit of traction. After all, the Oculus app was America’s most downloaded in the Apple (AAPL) App Store for Christmas. Despite the mixed success of the Oculus Quest 2 headset, it’s clear that Meta needs to do more to show that it’s ready to broaden its focus from Facebook and move on to new growth frontiers.
With a new, higher-grade Cambria headset on the way, Meta may very well improve upon the shortcomings of its prior headsets, most notably the earlier generations of the Oculus Rift. Better hardware and new technologies could solve the “VR sickness” problem, or at the very least reduce it in a way such that headsets could be in a spot to replace smartphones as someone’s go-to device.
Meta Going Beyond Facebook
For now, Facebook is paying the bills, and any investment in the metaverse may or may not come with a return on invested capital that the firm is known for. There’s a lot at stake, but Mark Zuckerberg has shown that it’s a mistake to bet against him or his firm, even in the face of backlash.
Even if the metaverse isn’t as jaw-dropping as Zuckerberg expects, the company still has Facebook generating massive sums of cash to place big bets in initiatives to keep its growth rate elevated.
Remember, Facebook and social media were a bit abstract in the earlier days of the internet. Once you created a Facebook account and logged in for the first time, though, the new world of opportunity became apparent. I think the same goes with the metaverse. Like The Matrix, it’s an experience that you need to see for yourself.
Indeed, there is a multitude of ways for Meta to show users its virtual worlds. The company is spending $10 billion (and counting) on the software initiative, with more likely funneled into hardware R&D on the next generation of headsets like Cambria.
One way Meta can onboard people to the metaverse is through competitive pricing of its hardware. A better way to onboard and preserve the company’s enviable margins is to acquire a video-game company, as Microsoft (MSFT) has been doing.
Should Meta Make a Big Splash in Video Games as Microsoft Has?
Gaming is likely to be the biggest draw into the metaverse. However, experiences and work could be a close second. Meta needs to play catch up on the gaming front if it’s to be a preferred choice in the metaverse. While the current lineup of casual experiences and games is intriguing, the company lacks a triple-A title that would make people willing to drop a four-figure sum on a shiny, new headset.
Think Valve Corporation and its Half-Life: ALYX title. It’s a pretty big draw to Valve’s Index VR headset. Meta needs something similar, but to get such VR-exclusive titles, the company likely needs to open up its wallet to make the next big acquisition in the gaming space.
Personally, I think Take-Two Interactive Software (TTWO) could send Meta stock over the top. Could it be the missing piece of the puzzle that is Meta Platforms? I think it could. However, the cost will not come cheap.
Take-Two arguably boasts one of the most metaverse-like titles out there, with the likes of massive open-world games like Grand Theft Auto and Red Dead Redemption. Take-Two has the open world down, and its next generation of titles could translate over very well in the metaverse.
Wall Street’s Take
Turning to Wall Street, FB stock comes in as a Strong Buy. Out of 14 analyst ratings, there are 13 Buys and one Hold recommendation.
The average Meta Platforms price target is $405.36, implying an upside of 37.2%. Analyst price targets range from a low of $300.00 per share to a high of $460.00 per share.
The Bottom Line on Meta Stock
For now, Meta Platforms is a confusing play. As the company reveals more about its visions of the future, though, I think it will be hard to keep the stock and the valuation this low. If FB acquires a gaming firm, big or small, look for the hype to return and the past year of criticism to fade.
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