Investors have punished these two forward-thinking technology firms, but their long-term potential remains intact.
Depending on who you ask, the metaverse entails some type of virtual or augmented reality designed to transport users into the digital domain, where they can engage with other people for a variety of reasons, whether for pleasure or commerce.
Though the ultimate shape of this new technology has not been finalized, estimations of its potential value are wide-ranging. According to Bloomberg Intelligence, the opportunity may be worth $800 billion by 2024, and with a 13.1% annual growth rate, it might increase to $1.6 trillion by 2030.
Meta Platforms (META 0.12%) and Snap (SNAP 0.60%) are the two main metaverse developers, and they approach it from distinct perspectives. Here’s why having both could be a good long-term investment.
Meta’s billion-dollar wager
When the economy was booming in 2021, Meta Platforms’ massive bet on the metaverse was viewed as an exciting investment in a future technology that had the potential to revolutionize the way people engage socially and professionally. A little more than a year ago, Meta stock was trading at an all-time high of $378.
However, with the economy stagnating and the rest of Meta’s business struggling in 2022, investors have chastised the company and its CEO, Mark Zuckerberg, for continuing to invest in the project.
Meta Platforms owns Facebook, Instagram, and WhatsApp, all of which rely on advertising to make money. However, given the current economic climate, customers are spending less, so businesses are investing less in marketing, which has had a direct impact on Meta’s portfolio of social media platforms.
During the most recent third quarter (ending Sept. 30), the corporation generated $27.7 billion in sales, a modest year-over-year decrease from the $29 billion it provided in the same period in 2021. While this is not ideal, investors are more concerned by Meta’s increased investment in its Reality Labs segment, which is in charge of the metaverse. Reality Labs lost $9.4 billion in the first three quarters of 2022, weighing down the company’s bottom line.
However, it is not all terrible news. Meta’s family of apps continues to expand in popularity, with 3.7 billion monthly active users. And the company’s yearly revenue for 2022 is likely to exceed $116 billion, a flat year compared to 2021, which isn’t necessarily a negative thing considering how difficult the economy is.
Then there’s the metaverse’s financial potential. When compared to what could be a multitrillion-dollar opportunity, in the long run, Meta’s commitment of less than $10 billion this year is reasonable. Mark Zuckerberg believes Facebook’s mass-market virtual world will attract one billion users, each of whom will spend hundreds of dollars on digital items by 2030.
Because Meta stock is down 70% from its all-time high and has traded at the lowest price-to-earnings ratio since it went public, now could be a good time to invest.
Snap has an enhanced view of the metaverse.
The beauty of new technology like the metaverse is that different companies are all developing their own original visions for it. Snap, the parent company of Snapchat, does not believe in a virtual world and has attacked rival Meta Platforms’ approach. Snap, on the other hand, aspires to merge the digital and physical worlds through augmented reality (AR).
Because the user does not have to be totally involved in the technology by wearing a headset, for example, AR has broader uses. It can be delivered on-screen with the help of a smartphone camera or even customized glasses. Snap is developing Spectacles. Wearers can go about their daily lives while having digital upgrades blasted into their eyesight without losing contact with other people in real life.
Snap’s advertising-based company, like Meta’s, has suffered this year as a result of the bad economy. However, it is working on a number of efforts to relaunch its growth trajectory, including game-changing AR features.
Snapchat users can use AR through their smartphone cameras to try on garments, and one shop generated 11 million impressions on the platform during the third quarter. Similarly, by allowing SnapChatters to explore outdoor furniture products via AR, another store noticed a 14-fold increase in its return on investment.
Leaving aside any possible value provided by the metaverse, it’s evident that AR may deliver a substantial boost to advertisers. Because Snap is a leading developer of the technology, there might be a significant long-term benefit for the company.
Snap’s revenue increased by 5.7% year over year in the third quarter; for comparison, it increased by 57% in the same period in 2021. On a more positive side, the company continues to see strong growth in daily active users, which increased 19% to 363 million during the quarter. As long as this trend continues, Snap’s ad revenue should rebound quickly once the economy rebounds.
Snap’s stock slide (some 87% from its all-time high) places it near the cheapest valuation since becoming a public business, thus investors may see value in developing a position at current levels, as Meta has.
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