Mark Zuckerberg wants Facebook, Inc. (Nasdaq: FB) to be the master of its own universe. So, he’s going all in on hardware and something he calls the “metaverse.”
The social media giant announced Monday that an internal team is being created to drive new virtual and augmented reality projects that will live inside a metaverse, a purely digital world.
Don’t laugh. It’s a really good idea, and yet another reason to consider buying Facebook shares.
I am an unrepentant Facebook bull. I have been telling all who would listen to ignore the domestic antitrust legislation, the fines in Europe and even the slings and arrows directed at Zuckerberg by the media and Tim Cook, Apple, Inc.’s (Nasdaq: AAPL) chief executive. I’m bullish on Facebook because the social giant is where people go to meet online.
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Facebook has 3 billion members globally. The platform has your friends, relatives and business acquaintances. This plethora of contacts makes it impossible to leave.
And that’s a major reason why the company’s next big idea will prove to be another win.
A metaverse is an opportunity for the Menlo Park, California-based company to gain complete control of infrastructure. It would control the operating system and the hardware needed for access. That’s a powerful position.
The company that wins the virtual world will control the operating system that promises to succeed smartphones and the mobile internet. That company will become the gatekeeper to a purely digital space where people can gather to play games, work and socialize, according to a post from Andrew Bosworth, a Facebook vice president.
Facebook — with its global scale — is the logical winner.
To guarantee victory, the company is investing heavily in connective tissue — the hardware and software needed to make the virtual experience seamless. This is next generation virtual reality headsets, handheld controllers and a new intuitive software operating system.
Zuckerberg told The Verge last week in a wide ranging interview that the metaverse will create an entirely new economy with payments, virtual goods, services and digital currencies.
Critics will say Facebook can’t succeed because the company lacks the public trust of firms like Apple, Alphabet Inc. (Nasdaq: GOOGL), Amazon.com, Inc. (Nasdaq: AMZN) or Microsoft Corp. (Nasdaq: MSFT).
This is simply not true. Facebook already won social. The metaverse is the evolution of social.
Currently, Facebook is primarily a digital ads business. Members come to its portal where they are captive to advertisements. Facebook sets the rules and costs because it owns the platform.
Its analytic tools allow ad buyers to slice up demographics and do A/B testing that is impossible on other platforms. For these services, Facebook commands a formidable 80.5% of gross margins.
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According to a report at Statista, global digital advertising in 2020 was estimated at $378 billion. Researchers believe the figure will reach $646 billion by 2024 as ad buyers move away from less measurable mediums such as outdoor, print, television and radio.
During the past week, Snap Inc. (NYSE: SNAP), Twitter, Inc. (NYSE: TWTR) and Alphabet all reported robust digital ad sales.
On Tuesday, Alphabet managers said their ad business grew to $50.4 billion during the second quarter, a 69% year-over-year increase.
You can bet Facebook is surely enjoying this resurgence in digital ad spend, and when its new ambitious multiverse plans come into fruition, the business will get to once unimaginable levels.
The stock trades at 24 times forward earnings and 10.5 times sales. Given the growth of digital ad spend and Facebook’s gross margins … these metrics seem cheap.
Investors should consider buying Facebook into any material weakness.
Best wishes,
Jon D. Markman
