Meta Platforms (FB) and its $10 billion spending spree to build the metaverse has been the talk of the town in recent weeks.
Undoubtedly, Roblox (RBLX) is one of few firms that shed light on the metaverse concept before Facebook rebranded itself amid its intense controversy. Some may view name change and shift of focus as a distraction since its line of social-media apps still keep the lights on. It’s an easy conclusion to make, especially since this isn’t the first time Facebook was criticized so harshly.
The recent backlash against FB and its broader basket of social-media apps may be part of the reason for the historic name change. Still, I ultimately believe that Meta’s shift of focus has come at the perfect time.
The COVID-19 pandemic’s end may be further off than many think, with new variants, such as Omicron, being discovered gradually over time. Indeed, the new normal could persist for many years, even with the advent of vaccines, treatments, and rapid testing.
With the potential for on-and-off lockdowns, there’s a strong desire for a new, safe way of interacting for work and pleasure. Zuckerberg has spotted the opportunity at hand, and he’s going for it with Facebook’s hefty balance sheet. Many other firms, including those outside of the technology sector, have taken notice, with metaverse plans of their own.
Undoubtedly, Meta’s shift of focus has shined a bright light on a trend that investors should not ignore. Although Facebook is a controversial company, it’s hard to be anything but bullish on the stock. (See Analysts’ Top Stocks on TipRanks)
Meta’s Grand Ambitions Were Many Years in the Making
Meta’s shift of focus may have been a shocker to some, but given the acquisitions the firm made over the years, the writing should have been on the wall. Undoubtedly, the acquisition of VR firm Oculus was noteworthy but confusing to many. With works on cryptocurrency project Diem (previously Libra), it’s easy to dismiss Facebook as a firm that had its hands in too many pies.
It seemed like Facebook was wandering outside of what Warren Buffett would call a “circle of competence.” Still, for a tech behemoth and FAANG member like Facebook, which can so easily expand into new growth verticals, such moves were a sign that Facebook is an innovator at heart.
FB is a firm like Apple (AAPL); it wants to take Wayne Gretzky’s advice by skating to when the puck may be headed next, rather than skating towards where the puck is at currently.
The Metaverse Is No Distraction
Meta’s $10 billion investment won’t pay off overnight. It may take years to fully pay off. That said, early investments in the nascent industry could be key to an unfathomable magnitude of growth anywhere from two to five years from now.
It’s tough to gauge when the metaverse will go mainstream. Innovations on the hardware front still need to be made to make the metaverse readily available to the average consumer.
VR sickness is a challenge that must be tackled before a significant shift from smartphones to VR or AR headsets can be made. So, there is always the risk that Facebook could create a multi-billion-dollar metaverse that only caters to a niche audience—the limited number of VR users today. This begs the question, when will the metaverse be ready for prime time?
I think the answer depends on when Apple is ready to make the jump aboard the metaverse bandwagon. AR is an incredibly important technology to Apple CEO Tim Cook. While the man has been secretive about Apple’s ambitions in VR or AR, Apple analyst Ming-Chi Kuo sees the company releasing an AR headset in the back half of 2022.
Apple isn’t a company keen on being too early to the party. Once Apple gets serious about its own metaverse ambitions over the next year or two, I think metaverse will go from a buzzword to a profound technological trend with a magnitude of hype that could rival that of EVs.
Apple tends to move into a new field when it’s ready for prime time. Given forecasts suggest a VR headset could land in a year, the metaverse could go from an abstract concept to the new normal in today’s new normal.
Wall Street’s Take
Turning to Wall Street, FB stock comes in as a Strong Buy. Out of 35 analyst ratings, there are 29 Buys and six Hold ratings assigned in the past three months.
The average Meta Platforms price target is $406.31, implying 24.8% upside potential. Analyst price targets range from a low of $300.00 per share to a high of $466.00 per share.
The Bottom Line on Meta Stock
Whether Oculus or Apple delivers the go-to VR or AR headset of the future remains a major question mark. In any case, many users are likely to tune into Meta’s open metaverse independent of which hardware device they’ll put on. For that reason, Meta is a company with potentially unfathomable growth prospects that may be closer than many skeptics may think!
Sure, there is a risk with spending such a considerable amount on the early development of something so abstract, but the potential rewards make the risk well worth taking.
Disclosure: Joey Frenette owned shares of Apple at the time of publication.
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