Facebook’s parent company, now known as Meta Platforms, is finally making the switch. On June 9, the social media player will officially ditch the FB ticker and instead start trading under META.
This is the final step of Meta’s rebranding, which it announced last October.
The move reflects the company’s aspirations in the metaverse realm… and the company has put money on the line to show how serious its plans are. Meta spent $10 billion on the metaverse last year – enough to drag down the company’s profits.
And the new name hasn’t done the company’s stock any favors yet… The social media giant’s stock has taken quite a hit since its all-time high in September 2021.
In fact, this February, FB shares fell 26% – the largest one-day drop in the company’s history – after Meta forecasted slower revenue growth and some revenue pain due to Apple’s latest privacy changes. It also noted that supply chain troubles and inflation were creating challenges for advertiser budgets.
And like the rest of the market, Meta has seen its stock punished among the overall market pullback we’ve been experiencing this year. The stock is down roughly 50% from its September peak.
And to add further drama to the headlines, last week, news broke that the company’s longtime COO, Sheryl Sandberg, is stepping down… leaving big shoes to fill.
All of this may have some investors wondering whether Meta is stumbling… and could continue its precipitous drop.
Yet just like another FAANG stock – Netflix – that I wrote about recently, the sea of bad headlines and declining share price shouldn’t have us writing off Meta too quickly…
Meta’s New Strategy
For unfamiliar readers, Meta is making a play for the metaverse. This is a collection of virtual worlds where people can interact, play games, hold business meetings, make transactions, socialize, own property, and more.
And whether or not we entirely understand it, it’s a big trend… and there’s plenty of money flowing into it. Depending on who you ask, estimates say the metaverse could annually generate anywhere from $800 billion by 2024 to $30 trillion by 2030.
So it almost seems natural for Meta to express interest in this new arena. The social media giant is hellbent on connecting the world.
And it’s hard to get more connected than a digital universe inhabited by people from across the planet.
As Mark Zuckerberg said when announcing the rebrand:
Today we are seen as a social media company, but 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.
This shift hasn’t come out of left field either. Back in 2014, Meta bought Oculus VR for $2 billion. At the time, Oculus was arguably the largest virtual reality (VR) pioneer.
And in the time since, its Quest 2 headset has garnered 78% of the augmented reality (AR)/VR market.
Meta is betting full force on this virtual experience augmenting real life – much like in the 2018 Steven Spielberg movie Ready Player One.
One day, we may all have an avatar with a different name, a different look, and even a different gender that we use in our favorite metaverse. And Meta’s VR headset will make this experience totally immersive.
And it’s becoming clearer that we are getting driven towards this future…
The Changing of the Times
Just think about the way kids and younger generations are socializing now. I see it in my children. They gather in chat groups and meet within video games, hanging out through these digital mediums.
They’re not playing stickball on the block anymore. The world has simply and fundamentally changed.
This means Meta has a ready-made market for the metaverse as this trend develops.
And its previous experience has primed it for success… If anyone can figure out how to monetize goods and services in a virtual world, Meta can.
The Facebook platform alone has over 2.9 billion users across the world. And Meta’s Instagram and WhatsApp each have roughly 2 billion users.
That means it has ready access to a global audience for its metaverse.
Currently, 97% of all Meta’s revenue comes from its advertising segment, which enables its customers to serve ads to groups segmented by age, gender, location, interests, views, and more.
And even in Q1 this year, Meta’s ad revenue grew 6% year-over-year to $27 billion.
In other words, it has its model down to a T. I don’t think it is going to have any issues monetizing the metaverse…
Meta Is Poised to Become an Even Bigger Empire
Meta bears looking at the price disruption, negative news cycle, and question mark around Meta’s future have it all wrong…
The company may be down right now, but in the future, this company is going to keep finding new ways to monetize the latest trends.
Meta has demonstrated a strong history of being able to see into the future. When Facebook first came out, many people didn’t see the point in it because there was already Myspace.
Yet Myspace is now a ghost town, while Facebook has grown into a hub of connectivity.
And Facebook still has strong fundamentals holding it up. Its one-year sales growth is over 37%. Its profit margin is 33%. And its debt/equity ratio is just 11.6%.
In simple terms, it has more than enough resilience to weather this storm.
And just like in the past, Meta’s stock will rebound from this dip and more than likely climb higher.
Editor, Outlier Insights