As the base interest rate has been raised since the end of last year, stock prices have fallen, led by technology stocks. In particular, there are many companies whose stock prices have fallen sharply as the profitability of companies that have grown rapidly due to the COVID-19 pandemic has stagnated. The non-face-to-face industry has grown rapidly as outings are restricted due to the COVID-19 pandemic. As a result, stock prices of non-face-to-face related companies such as video conferencing, cloud, and cybersecurity have risen sharply. Of course, sales and profits also increased.
As with other internet companies, Meta Platforms, whose share price has fallen more than 70%, is going through the toughest time in its history. Facebook and Instagram ad sales accounted for most of the company’s revenue, but ad revenue decreased due to the economic downturn, and due to excessive financial spending on Reality Labs, which researches and develops Metaverse, net profit fell by more than 50% compared to the previous year.
I think of Meta Platforms as a ‘good company’. It can be said that the high dependence on advertising revenue is a risk in the current situation, but the profit from Facebook and Instagram is still large, and based on this, it is positive to continue research on the metaverse.
In the past, when the internet market first opened, there were few users, but now it has become a market where everyone participates, so I think VR platforms are similar. The concept of metaverse has not been established yet, and there is not much demand for it, so there are few users now, but in 10 years at the latest, the metaverse market will become a new trend that replaces the current social media market.
2000’s dot-com bubble
Have you ever looked up Amazon stock prices on Google? When I tell others how good a long-term investment is, I always show them a graph of the Amazon’s stock price. Amazon’s stock fell 88% during the dot-com bubble. But what happened after that?
Amazon stock has risen 2,706.17% since January 2000. As you can see from the graph below, you can’t see anything that fell during the dot-com bubble. At the time, the stock was down 88%, so it was bound to be a matter of debate, but over time, you can see that it has declined to a level that is not even a speck.
Looking at stock price returns since January 2002, Amazon’s stock has risen by a whopping 17,388.82%. Even this number reflects the share price decline since the end of last year, which may have resulted in higher returns.
The current Meta is in a similar situation to the Amazon of the past. After the COVID-19 pandemic, Meta has grown rapidly, with its share price rising over 160%, but now plummeting close to 80% from its highs. In the wake of the share price decline, investors are calling on the company to cut financial spending on Metaverse and lay off employees.
Recently, Meta announced plans to lay off thousands of people, which drove the stock up 6%. Massive layoffs are one of the ways to cut costs and strengthen a company’s profitability. Since the net profit has decreased due to large-scale financial expenditures on Metaverse, it is necessary to reduce the cost even by reducing the number of employees.
Fortunately, investment in the metaverse does not appear to be decreasing. Since the metaverse is a new trend, we have to prepare from now on. Meta is making a huge investment in Reality Labs, which is researching VR/AR, and I don’t think it’s going in the wrong direction. Just like Amazon did in the 2000s, few investors look to the future of Meta and make big profits in the future.
Metaverse Market Potential
Awareness of the metaverse is not good these days. Many people think the concept of metaverse is vague and incomplete. They are right. The definition of metaverse is still not clear. However, I think that companies like Meta should define the metaverse market just like Apple pioneered the smartphone market. Personally, I think the metaverse is a platform that expands the real world and digitally connects everyone beyond physical limits.
The reason the Internet could not spread quickly in the early days was due to the low penetration of PCs. However, as the PC penetration rate increased, the Internet market also grew. The metaverse market is similar. Currently, the metaverse market is not growing as fast as Meta thinks because the penetration rate of VR/AR devices is low. Time will naturally solve this problem. In the future, there will be no TVs in homes and one VR/AR device per family member.
Released in 2019, Meta Quest 2 has sold 15 million units so far. Meta’s ecosystem expansion capability is exerting a strong force in creating the Meta Quest ecosystem, and the Meta Quest platform is the most used in the VR ecosystem. It’s still in its infancy, so over time it will become as huge as the Android/Apple ecosystem.
Today, VR headsets are most often used for gaming, but in the future they will also be used for fitness, entertainment, and work. Just as smartphones are used a lot in real life, I think VR devices will be the same. According to market research firm Technavio, the AR/VR market is expected to reach $162 billion by 2025, growing at an annual rate of 46%.
Meta is a pioneer in the fast-growing metaverse market, and investing in new markets rather than focusing on the past social media platforms Facebook and Instagram will help the company survive.
Now, the bubble is bursting with technology stocks and growth stocks that have risen higher than their corporate values. Now is the time to find ‘good companies’, and investing in companies that are expected to slow their growth will inevitably result in losses. Companies related to new technologies such as Metaverse and NFTs have high potential, but they must be aware of the fact that they can fail.
Meta has huge social media platforms like Facebook and Instagram, so the company can actively invest in Metaverse. The company must turn crisis into opportunity. I believe that Meta will succeed in its transformation into a metaverse company.