With all the attention in the last year going to artificial intelligence (AI), investors understandably might have forgotten about the metaverse. However, keeping tabs on what's going on in the space is a good idea.
That's because businesses are working on advancing this technology. You are surely familiar with one of these.
If you're looking for a top metaverse stock to buy in 2023 and beyond, it's best not to overthink it. Consider adding Meta Platforms (META -0.05%) to your portfolio. Let's take a closer look.
Meta's big ambitions
Meta's Reality Labs division is where its metaverse operations reside. Consumers might know about the company's Oculus VR (virtual reality) headsets or Ray-Ban AR (augmented reality) smart sunglasses. Moreover, the segment has developed Horizon Worlds, which is a collection of digital realms where people can interact with each other in different ways and for different applications.
To demonstrate a use case, I remember Meta famously showing off something called Workrooms. This is similar to a video conference call, but people have avatars representing themselves in a virtual room. You can see how this could also find some success with gaming or fitness applications.
This all sounds exciting, but Reality Labs continues to burn through cash. Since the start of this year, operating losses have totaled a whopping $11.5 billion. This is even more discouraging when you consider that revenue through the first nine months in this segment totaled a measly $825 million. The leadership team expects losses next year to be even greater.
Meta critics don't hesitate to view this new focus as a waste of time, effort, and money. The strategic rationale makes sense, though. Founder and CEO Mark Zuckerberg wants to create a completely new internet platform that Meta owns and controls, which could lead to more advertising revenue capabilities.
Of course, the question with new technologies in the early stages is whether consumers actually find them useful. With the metaverse, time will ultimately tell. And with the ongoing rise of AI and the billions of dollars of investment in the space, it'll also be interesting to see how this technology mixes with the potential for the metaverse.
For what it's worth, Zuckerberg previously said his goal is to help bring 1 billion users into the metaverse, which seems like a lofty objective. But based on his track record of successfully building one of the world's most dominant companies in just the past couple of decades, it's hard to be totally pessimistic.
Strong foundation
If Reality Labs were its own independent corporation, I'm sure its share price would be down this year. Plus, it would likely have to raise fresh capital numerous times to fund operations.
Luckily, Meta has an extremely lucrative segment called the Family of Apps (FOA), which is a money printer. This division houses popular apps like Facebook, Instagram, WhatsApp, and Messenger, with 3.96 billion monthly active users combined. While already massive, this figure was up 7% year over year, indicating growth potential.
These apps generated $33.9 billion of revenue in the three-month period that ended Sept. 30. And the financial success here helped propel Meta to post a superb operating margin of 40% for the overall company.
It's safe to say that the business has the resources to continue investing in metaverse ambitions. Not to mention the ability to attract the brightest minds and best tech talent to work on these projects.
At a forward price-to-earnings ratio of 23.6, Meta stock doesn't look expensive, even after its huge run in 2023. Investors might rush to buy Meta for the thriving FOA segment, but the metaverse is a meaningful call option that could boost the upside over the long term.
