Meta platform (Meta 0.07%) Investing billions in Metaverse. It even changed its name a few years ago to reflect its commitment to next-generation virtual reality. Not only is this an expensive undertaking, it’s also a time-consuming one, and there’s a big risk that it won’t be as successful as CEO Mark Zuckerberg hopes it might be. The company is better off leaving the Metaverse, and investors should hold off on buying the stock until that happens, even teenagers aren’t excited about it.
Demand may not be so strong
Virtual reality may seem like the new thing to interest young people and represent a big growth opportunity, but the demand just doesn’t seem to be there, at least not yet. According to a recent survey from Piper Sandler, only 4% of teens who own a headset use it daily. And only 7% even plan to buy a headset.
The meta platform recently dropped the price of its virtual reality headset, but at $429.99 for its lower-end Quest 2 headset, it’s still a steep price. If one does not intend to spend a lot of time in Metaverse (for example, on a daily basis), it may be difficult to justify a large purchase. And that’s a big problem with the Metaverse – when you can’t need A virtual reality headset in all cases, it’s definitely a big part of the Metaverse experience. So if people aren’t interested in buying a headset, they probably won’t show serious interest in Metaverse.
In general, interest in the metaverse has waned since 2021 when it was a big new thing that the meta platform (still Facebook) was going to invest heavily in. But according to the alphabetAccording to its Google Trends data, interest in the search term “metaverse” is declining and is now at its lowest since news of Meta’s investment first broke in the online world.
The company is already spending billions on Metaverse
Although tech companies may have side projects that they may or may not work on, the costs associated with those projects are usually relatively modest compared to the rest of the company’s operations and rarely involve separate operating segments. But that’s not the case with the meta platform – it’s spending billion On the metaverse to the point that it has destroyed the company’s finances.
Reality Labs, which is the company segment associated with Metaverse, reported an operating loss of $13.7 billion last year. And the year before that, the loss was $10.2 billion. The metaverse remains in its infancy, and the business generated $2.2 billion in revenue last year, compared to the meta. The company’s Family of Apps division, which includes social media sites Facebook and Instagram, along with messaging services Messenger and WhatsApp, brought in $114.5 billion and had an operating profit of $42.7 billion.
These losses have reduced the company’s profits in recent years:
META Profit Margin (Yearly) Data by YCharts.
And while the company still generates billions in free cash flow, it also nosedived last year:
META Free Cash Flow Data by YCharts.
Generating less free cash flow means the company will have less money to spend on acquisitions or other investments. While Meta isn’t in trouble by any means, it’s a cause for concern for investors because the deeper the company goes into the Metaverse, the more it may be forced to continue spending on what could be a daunting venture for the business.
Investors should ditch the meta until it ditches the metaverse
The Meta platform had a great business when it focused solely on social media. But adding the metaverse to the mix creates a money hole that can only make the tech stock a worse investment.
While the stock has been doing well recently as the business cuts costs and lays off workers to improve its bottom line, those cost cuts may pale in comparison to the spending the company is making on Metaverse. And until it ditches that risky venture, investors should steer clear of the stock because operating losses from Reality Labs could spell more pain for investors.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randy Zuckerberg, former director of market development and Facebook spokesperson and sister of Meta platform CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. David Zagielski has no position in any of the stocks mentioned. The Motley Fool has terms and recommends Alphabet and Meta platforms. Motley Fool has a revealing policy.