Is Facebook’s Metaverse a good investment?
Facebook recently changed its company name to Meta Platforms. Starting in December 1st, its ticker symbol in the stock market will change from FB to MVRS. This rebrand shows Zuckerberg’s commitment to making “The Metaverse” the future of the company, something that will not surprise the ones who have been following the company’s investments and statements on the earnings calls during the last couple of years. As he said, the company’s mission stays the same, “Give people the power to build community and bring the world closer together,” only that from now on, the focus will be on doing it in the most digitally immersive way possible.
The Metaverse
The metaverse is a network of virtual reality universes where people can gather to play, socialize, study and even work. Imagine the internet but in 3D. It is decentralized and open to developers, enabling the creation of its own digital economy with people from all over the world as creators and owners of Digital Assets such as spaces, worlds, goods and commerce inside the metaverse. Also, transferability of digital assets outside should be admissible. For all that to be possible the use of blockchain technology like cryptocurrencies and NFTs is a must, and I believe Zuckerberg knows it. In FB’s last earnings call he stated that their goal is to help the metaverse reach a billion people and hundreds of billions of dollars of digital commerce this decade, and that helping to shape it should also reduce their dependence on delivering services through competitors’ platforms.
· Examples of closed platforms include: Fortnite, Roblox (RBLX), Second Life, Minecraft.
· Examples of decentralized blockchain platforms include: The Sandbox (SAND), Decentraland (MANA), Axie infinity (AXS).
As of today, we interact daily with the internet by using smartphones and computers, soon it will be normal to interact from the real world with the metaverse by using Augmented Reality (AR) glasses or getting immersed inside the 3D experiences by the use of Virtual Reality (VR) glasses. To have a better idea, take a look at the video down bellow and the following ones on the YouTube list.
The Business
Meta’s long-term vision is to to dominate hardware sells through products like the Oculus VR glasses and the new Facebook’s Rayban Smart glasses, commerce inside their own 3D platform called Horizon, and of course, ads. But they will be facing strong competitors such as Microsoft, Google, Apple and NVIDIA which all have metaverse related projects.
Financially, Meta is a healthy company. My main concern for the short-term comes down to the future of its ads business. Facebook Ads, the company’s main income source, has been struggling since Apple launched the privacy updates that prevents advertisers (on platforms such as Facebook and Snapchat) from tracking iPhone users’ data without their consent. The immediate effects have been awful for Meta and all the merchants relying on their targeted ads. It has gotten “harder to measure the effectiveness of ad campaigns on their platform,” they said. Only 4% of iPhone users allow Facebook app data tracking according to Flurry Analytics.
Apple’s Ads business has eaten all the market share that Facebook Ads has lost. Since they introduced the new privacy rules back in April, the total market share for Apple Ads has more than tripled. And the trend is expected to continue for a little bit longer.
Facebook’s daily active users in US, Canada and Europe are not growing anymore. Growth is concentrated in Asia-Pacific and the Rest of the World. The problem is that those specific regions are the least profitable. As reported the last quarter the average revenue in US & Canada is around $52, in Europe $16.5, meanwhile in Asia-Pacific and Rest of the World avg revenue is only $4.3 and $3.14 respectively.
Keeping in mind that investors have gotten used to the company’s track record of growth, any deviation from guidance and analysts’ consensus earning targets will surely bring volatility to the downside. 2022 is expected to be a bumpy road as Meta tries to fix the problem by launching new tools and capabilities to help brands and small businesses with their marketing. On top of that, investments in R&D towards augmented and virtual reality products and services will grow even further in 2022 and following years.
In my opinion these factors represent too much uncertainty in the near future. Being conservative, I will prefer to see how things develop in the coming quarters and perhaps take a position on a cheaper valuation if things clear up. While it can still be a good long-term opportunity, in any emerging market there are always more options to choose from and The Metaverse is no exception, you just have to search deep and patiently.
THIS IS NOT INVESTMENT ADVICE
This article expresses my own opinion. Nothing contained in this article should be construed as investment advice.
