Facebook – Sorry, “Meta” – Is Betting Big On The Metaverse. Should You Be Too?

Facebook – Sorry, “Meta” – Is Betting Big On The Metaverse. Should You Be Too?
Andrew Rummer

over 2 years ago5 mins

  • Facebook’s rebrand puts it top of mind with investors seeking exposure to the metaverse – and handily distances it from a social network that’s become increasingly controversial.

  • But at heart, Meta is still an online advertising firm that’s reliant on expanding global marketing budgets for future growth.

  • For purer plays on the metaverse trend, check out Roblox, Unity Software or even Nvidia.

Facebook’s rebrand puts it top of mind with investors seeking exposure to the metaverse – and handily distances it from a social network that’s become increasingly controversial.

But at heart, Meta is still an online advertising firm that’s reliant on expanding global marketing budgets for future growth.

For purer plays on the metaverse trend, check out Roblox, Unity Software or even Nvidia.

Mentioned in story

Facebook – the world’s biggest social network – has officially changed its name to Meta Platforms Inc., in a bold bet on a new iteration of the internet that’ll see avatars of ourselves living, working, and playing. So let’s look at whether Facebook’s onto something here and, if so, how can you take one small step into the metaverse.

What’s Facebook playing at?

The metaverse is a term coined by Neal Stephenson in the 1992 dystopian sci-fi novel “Snow Crash”, describing the place where people remotely hang out while wearing virtual reality (VR) headsets. Or if you want a more recent cultural reference, think of the Oasis in “Ready Player One”.

Facebook clearly believes this is an idea whose time is near, despite the many technical challenges. And after the company was criticized for taking too long to make the switch from desktop to mobile in the early 2010s, CEO Mark Zuckerberg seems keen to jump before he’s pushed this time around.

Channeling Facebook’s early motto of “move fast and break things,” the company last week officially adopted its new name and said it’ll change its stock market ticker from FB to MVRS on December 1st. The only problem for Zuckerberg’s grand vision is that investors so far seem underwhelmed, with Meta’s shares trading near a five-month low.

Share price reaction to Facebook’s name change
Share price reaction to Facebook’s name change

The question, then, is whether this switch will ultimately prove a strategic masterstroke or a rebranding disaster to rival New Coke, Consignia, or Tronc.

What’s Meta’s strategy?

It’s tempting at first glance to see this move as a repeat of Google’s 2015 decision to create Alphabet, an umbrella company that would sit above its core advertising business and its various “moonshot” projects, like self-driving cars and artificial intelligence. But while Google chose a neutral-sounding name for its parent company and kept its GOOGL ticker, Facebook’s switch to Meta feels like a bigger break.

Being cynical, you could see the rebrand as an effort to distance the company from its original Facebook product – a social network that’s come to be derided as, at best, a deeply uncool hangout populated by aging uncles peddling conspiracy theories, and, at worst, an existential threat to the very fabric of our society. Downplaying the role of Facebook in the wider group of products – which, after all, also includes the far hipper and less controversial Instagram and WhatsApp – reduces its association with an app some argue is as harmful as tobacco.

But being more generous to Meta, perhaps it's hoping to repeat the trick it pulled off in the 2010s when a belated but successful switch from desktop to mobile turbocharged its revenue.

Facebook’s mobile ad revenue overtook desktop eight years ago
Facebook’s mobile ad revenue overtook desktop eight years ago

This time around, however, there’s far less consensus that VR headsets will ever be as popular as smartphones, even if prices fall dramatically as the technology improves. And when it comes to use cases, the metaverse so far is really just about gaming.

Even arch technophiles like Ark Investment Management only see the market for VR headset and augmented reality (AR) glasses hitting a modest $20 billion by 2025. And Bloomberg Intelligence reckons it’ll take at least three years for Meta to sell 15 million of its Quest VR headsets. That’s small beer compared with the towering market for smartphones, where nearly a billion were sold as long ago as 2013.

So why make this change?

Meta hasn’t yet said how expanding into the VR metaverse will make the company money – beyond selling a few headsets. But presumably it’ll hope to insert ads into virtual worlds like it currently does to your Instagram or Facebook feeds.

After all, Meta – along with its big rival Google – wants to continue to bestride the online ad world like a colossus. It’s forecast to bring in $114 billion in ad revenue this year – about 17% of the entire global ad market – and it has no intentions of letting that slip. 

But there are two main dangers to this cash cow’s future: regulatory action that cuts the company down to size (which currently seems unlikely), or the popularization of a new kind of internet outside Facebook’s walled garden. The switch to the metaverse potentially heads off that latter threat.

What’s the opportunity here?

The metaverse is certainly having a moment. While games like Second Life have allowed people to inhabit online avatars for nearly 20 years, the surging popularity of Fortnite and Roblox – where half the 43 million daily active users are under 13 – is taking a once-niche pursuit into the mainstream.

Google searches for the term “metaverse”
Google searches for the term “metaverse”

And if you buy Zuckerberg’s premise that we’re “at the beginning of the next chapter for the internet,” Meta has suddenly become the highest-profile stock with which to bet on a Snow Crash future. The only problem – and it’s a rather large problem – is that 98% of the company’s current revenue comes from advertising. So buying Meta today is more of a bet on the health of the global economy and business marketing budgets than on a future filled with VR headsets.

A purer play for those wanting metaverse exposure might be through Roblox, which earns income from users buying its in-game currency. You could also consider providers of game development tools, like Unity Software or Autodesk. And the investment bank Goldman Sachs points to Snapchat owner Snap as a metaverse play, although – as with Meta – the company’s current income is dominated by ads.

If you prefer exchange-traded funds to stock picking, the Roundhill Ball Metaverse ETF – which, unfortunately for Zuckerberg, has already bagged the ticker META – launched in June and has taken $165 million in investor cash. Its biggest holdings are: our old friends Roblox and Meta, Minecraft-owner Microsoft, and Nvidia, a maker of video-game chips that’s betting big on the metaverse.

For now the jury’s still out on whether Zuckerberg will go down in history as a visionary who saw the potential of the metaverse before other business leaders, or a cynic who changed his company’s name to avoid bad publicity. But even if you believe in the vision, there may be better ways to gain exposure than through Meta shares.

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