Meta Systems Is Taking the Long View With the Metaverse

Mark Zuckerberg is betting on the metaverse to be the next big thing for Meta Systems (NASDAQ:FB) stock.

Meta logo is shown on a device screen. Meta is the new corporate name of Facebook.
Source: Blue Planet Studio / Shutterstock.com

The company formerly known as Facebook changed its name to Meta in October, taking a name that’s said to reflect the company’s ambitions beyond social media.

“In our DNA, we are a company that builds technology to connect people, and the metaverse is the next frontier just like social networking was when we got started,” Zuckerberg said as part of the announcement.

He announced that Meta would spend at least $10 billion in 2022 to build out the metaverse virtual world that he hopes will become the gold standard for gaming, social networking and virtual work environments.

But since that announcement, FB stock has been a snoozefest, taking a roller-coaster ride before ending the last three months of 2021 down nearly 2%.

FB stock gained more than 23% in 2021, but the market hasn’t been impressed with the newly named Meta since Zuckerberg’s announcement. In the fourth quarter, FB stock actually dropped nearly 2%.

However, there are indications that Zuckerberg is on to something. There is a lot of interest in the metaverse these days. Investors are looking for new ways to jump on the bandwagon, and even some governments are scoping out their own place in virtual space.

FB Stock at a Glance

Third quarter earnings posted in October were a mixed bag. The company showed revenue of $29.01 billion, missing analysts’ expectations of $29.57 billion. Earnings per share came in better than hoped, however, with FB stock earnings $3.22 per share versus expectations of $3.19.

The company lived up to expectations by posting 1.93 billion daily active users. But it missed in monthly average users, showing 2.91 billion versus the 2.93 billion that analysts expected. The company (it was still called Facebook at the time) also generated $10 in average revenue per account, but the experts were looking for $10.15 per account.

But 2022 may be a lot better. Baird analyst Colin Sebastian identified Meta as one of his top three internet stocks for the year, citing expected improvement in core advertising numbers. He also singled out Amazon (NASDAQ:AMZN) and Zynga (NASDAQ:ZNGA).

The Metaverse

While FB stock wasn’t on fire since Zuckerberg announced the name change to Meta, interest in the metaverse is certainly at an all-time high.

For instance, CNBC reports that Meta’s Oculus virtual reality app was the most downloaded app in Apple’s (NASDAQ:AAPL) App Store on Christmas day. That indicates that there were a lot of Oculus sets put under Christmas trees this year. Facebook bought Oculus in 2014 for more than $2 billion, but the company hasn’t been able to really take the virtual reality headsets mainstream yet.

That may be changing. Emergen Research estimates that the market for virtual reality and metaverse technologies already topped $49 billion, and will grow on average by more than 40% per year.

Yosuke Matsuda, the president of video game maker Square Enix, recently released a letter touting the metaverse, saying that Zuckerberg changing his company’s name shows the concept “is not a mere buzzword but here to stay.”

He continued:

The metaverse will likely see a meaningful transition to a business phase in 2022, with a wide range of services appearing on the scene. As this abstract concept begins to take concrete shape in the form of product and service offerings, I am hoping that it will bring about changes that have a more substantial impact on our business as well.

And even the city of Shanghai is making plans for the metaverse. A city department included the metaverse in its five-year development plan to encourage metaverse use in public services.

The Bottom Line

While all the talk about the metaverse is exciting, investors should be prepared to take a long view.

Meta’s huge investment in the metaverse won’t pay off any time soon. Even Zuckerberg acknowledges that elements of the metaverse won’t become mainstream for five or 10 years.

And while the former Facebook has a long history of innovation, there will be plenty of other major companies looking to carve out its own piece of the pie.

But if you are willing to put in the time, then the metaverse could be just the thing to charge FB stock down the road.

On the date of publication, Patrick Sanders did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Patrick Sanders is a freelance writer and editor in Maryland, and from 2015 to 2019 was head of the investment advice section at U.S. News & World Report. Follow him on Twitter at @1patricksanders.


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