Facebook’s Evolution – The Metaverse

Insert Meta:

The legacy Facebook branding has been officially decommissioned as the company looks to the future with the metaverse in its sights. As such, the newly branded company is conveniently called Meta Platforms (MVRS) thus placing the future of the company firmly in the metaverse space. Albeit its social media properties will still be vital to the company, Meta believes that its future will in the metaverse. This rebranding comes at a pivotal time after a string of public relations debacles stretching over several years. The underlying stock has been beaten up over the past month falling from $384 to $312 or 19% from its 52-week high. This double-digit decline places Meta in very inexpensive valuation territory and relative to its technology peers, one of the cheapest high growth stocks. With a firm pivot towards future end markets via the metaverse along with its social media prowess, its valuation is very appealing at this juncture.

Figure 1 – Facebook’s rebranding and new Meta logo that reflects the company’s new direction into the metaverse

The Metaverse:

Meta is striving to be a leader in the nascent metaverse, the intersection of virtual reality, augmented reality, three-dimensional video environment and an all-encompassing virtual environment. It's a combination of multiple elements of technology, including virtual reality, augmented reality and video where users "live" within a digital universe. Supporters of the metaverse envision its users working, playing and staying connected with friends through everything from concerts and conferences to virtual trips around to the world. Mark Zuckerberg estimates it could take five to ten years before the key features of the metaverse become mainstream. But aspects of the metaverse currently exist. Ultra-fast broadband speeds, virtual reality headsets and persistent always-on online worlds are already up and running, even though they may not be accessible to all.

Meta has already made significant investments in virtual reality, including the acquisition of Oculus. Meta envisions a virtual world where digital avatars connect through work, travel or entertainment using VR headsets. Zuckerberg has been optimistic on the metaverse, believing it will be the next evolution of the internet or could replace the internet as we know it. "The next platform and medium will be even more immersive and embodied internet where you’re in the experience, not just looking at it, and we call this the metaverse," per Meta CEO Mark Zuckerberg

Social Media Goliath:

Meta will continue to demonstrate its ever expanding and massive moat in the social media space. Meta’s core social media platform (Facebook) in combination with its other properties such as Instagram and WhatsApp continue to grow while expanding margins and unlocking revenue verticals. Despite being faced with several public relations challenges over the past couple of years (i.e. Cambridge Analytica, coordinated boycotts, government inquiries into privacy, jumbled earnings calls, anti-competitive testimonies and the recent internal release of sensitive information suggesting profits supersede safety), Meta has triumphed to all-time highs after each event. In conjunction with the public relation issues Meta had to contend with scaled back advertising spending amid the COVID-19 pandemic. Meta continues to grow across all business segments with its user base continuing to slowly expand. Meta’s moat is undeniable and any meaningful sell-off like the recent public relations induced weakness could provide an entry point for the long-term investor. The stock is off 19% from its all-time highs and stock is inexpensive relative to its technology cohort.

Valuations and Inexpensive Stock:

Meta has over 3.2 billion monthly users across its platforms (Instagram, Messenger and WhatsApp) that the company is actively engaging to expand margins and create additional revenue verticals. From a valuation standpoint, the company is inexpensive especially after the 19% sell-off from all-time highs. Facebook has a P/E ratio of 24 and a PEG ratio of 1.1 compared to Amazon (AMZN) with a P/E and PEG of 68 and 1.9, respectively, Google (GOOGL) with a P/E of 27, Microsoft (MSFT) with a P/E and PEG of 37 and 2.2, respectively and Apple (AAPL) with a P/E and PEG of 28 and 1.8, respectively. With it’s PE and PEG ratios being the lowest among all big technology names indicates that its growth relative to value is the best in-class.