One of the largest companies in the world underwent a complete renovation in 2021. The social network titan Facebook changed its name to ID pads (NASDAQ: FB) He noted his focus on developing metaverses. Some people think it’s the next front, a digital economy where the physical and digital worlds come together.
Meta has three special tools that make it my favorite stock to invest in the meta. Today the stock is also a bargain, making it a compelling opportunity for both short- and long-term investors.
Massive dead audience
There can be plenty of opportunities to monetize the metaverse in the long run as it grows and develops. Meta’s primary business is advertising on social media networks like Instagram and Facebook, so I expect this to be Meta’s ultimate goal in the metaverse.
The important thing for Meta is to take its massive audience into the metaverse. The company boasts an astounding user base of 1.93 billion users who use Meta Networks daily and 2.91 billion who use it at least once a month. That’s nearly four in 10 people worldwide.
Few companies on the planet have this kind of access. If Meta can successfully build a metaverse platform where an audience of a similar size can interact and generate revenue through advertising, the potential payoff for Meta could be staggering.
Of course, the question will naturally be: How do people find metaverses? Meta is investing $10 billion over the next year in metaverse projects, but its best tool so far could be one of its past investments.
Meta acquired Oculus for $2 billion in 2014, and it has grown into a leading brand of hardware for virtual reality. According to estimates, Meta sold nearly 7 million Oculus headphones in 2021, which indicates the strong momentum of the brand.
The larger Oculus’ footprint becomes, the more its ecosystem will grow. It can eventually grow to have the same kind of monopoly as hegemony An apple And the alphabet Have fun with their smartphone app stores.
Among the deepest pockets
Meta is flexing its financial muscle in developing its metaverse business. Hearing that a company invests $10 billion in something in one year may set you back; It’s more than many public companies generate in revenue.
Meta’s balance sheet is huge, holding $58 billion in cash and marketable securities. It’s also a free cash flow machine, generating tens of billions of free cash flow while growing revenue.
Meta doesn’t need to spend a lot of money apart from research and development – their current products are already built in and require very little maintenance. Revenue increases as more users join the platforms and easily exceeds Meta costs. CEO Mark Zuckerberg has already said that the company will spend significantly over the coming years building the metaverse. Investors should not doubt that Meta can take on this ambitious task.
The stock itself is currently just over 12% from 52-week highs, but the price-to-sales ratio is just under nine and close to the lower end of the five-year range. The stock has barely risen since the announcement of its name change and reverse intentions in October, so investors may not have priced in the long-term potential of this opportunity just yet.
On the other hand, the P/E ratio of 23 is less than Standard & Poor’s 500(currently 29), despite superior growth. Analysts see earnings per share (EPS) growing 20% each year over the next three to five years.
Can the stock continue to decline? However, certainly, with the stock’s valuation lower, I think there’s a good chance the stock is moving along with the company’s actual growth (20%, as noted above). I think the stock has a conservative upside of 25% in the short term, which only requires a slight valuation increase as well as EPS growth in Meta.
The Meta has been the subject of a lot of negative news headlines regarding its social media platforms in 2021. If investors start warming up to the Meta from future optimism about the metaverse, or strong Oculus sales happen over the holidays, there is room for the stock to run from its current valuation.
This may mean a nice return in the short term, but Meta is likely to be a better investment in the long term. Estimates of 20% growth in Meta are for every year from now on and can last up to five years. Perhaps 25% is just the tip of the iceberg if the company’s in-kind investments begin to pay off over the next few years.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of the Motley Fool Premium Consulting Service. We are diverse! Asking about an investment thesis — even if it’s our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.