It’s been a few weeks since Meta Platforms (FB) – Get Meta Platforms Inc. Class A Report saw its stock slammed after disclosing massive spending on its metaverse initiatives.
In the intervening weeks, shares of the company have continued to trade far below recent highs, basically at levels last seen two years ago.
Real Money Columnist Kevin Curran noted at the time that the disclosures from Mark Zuckerberg’s company have implications for many other potential players in the virtual world.
“After the newly renamed Meta Platforms posted a massive miss on earnings, driven by heavy investment in money losing metaverse efforts, there’s good reason for investors bullish on the metaverse narrative to get nervous,” Curran wrote on Real Money.
“In the very first breakdown of virtual reality initiatives offered to investors, the company’s Reality Labs division that heads up this push was shown to be hemorrhaging cash. All in all, the unit lost about $10.2 billion in 2021, with losses accelerating into the current quarter,” Curran added.
Even worse, “while losses in the March quarter came in at $1.8 billion, that ballooned to $3.3 billion by the fourth quarter,” Curran said. “That trend does not look as though it’s subsiding at all, either.”
In fact, CEO Mark Zuckerberg has gone to great lengths to emphasize that profits are a long way off. “He noted explicitly in his prepared remarks on the earnings call,” Curran said. “For bulls on the metaverse, this long-term view is the crucial factor keeping hopes alive.”
But while Meta Platforms gets much of the attention, there are many other emerging players in the space.
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Other Players
Curran pointed to Unity Software (U) – Get Unity Software, Inc. Report, a metaverse-focused video game design company that recently saw its stock surge after reporting stellar earnings.
“We believe that the transition from linear 2D to interactive real-time 3D presents a massive growth opportunity for the next decades,” Unity CEO John Riccitiello said in a statement after the results. “These are strong tailwinds that help us drive growth for years to come.”
Other players in the space include Roblox (RBLX) – Get Roblox Corp. Class A Report, and Matterport (MTTR) .
But perhaps the biggest worry for Zuckerberg and Co. is the potential for a much older rival to claim a major stake in the brave new world.
Curran noted that Bernstein analyst Mark Moerdler has advised clients that older software firms like Adobe (ADBE) – Get Adobe Inc. Report and Salesforce.com (CRM) – Get salesforce.com, inc. Report are being overlooked.
However, “It is, we believe, Microsoft (MSFT) – Get Microsoft Corporation Report that is best positioned to be a big winner from the metaverse,” Moerdler told clients. “We would argue that Microsoft is extremely well positioned, having almost all of the major capabilities required to deliver a metaverse platform today.”
Curran noted that “the Redmond, Washington-based firm’s acquisition of Activision Blizzard (ATVI) – Get Activision Blizzard, Inc. Report will certainly accelerate this trend as well. Further, its acquisitive action could ignite an arms race to snap up metaverse-focused companies, also rewarding investors eyeing the space at present.”
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