The important points
- The Metaverse can open up new opportunities for Meta Platforms and diversify their revenue streams.
- The social media giant could make a lot of money from this emerging tech trend if it develops quickly.
When social media giant Facebook changed its name to Metaplatforms (NYSE:BAC) has changed, CEO Mark Zuckerberg said in the founder’s letter that the company is “at the start of the next chapter for the internet,” a platform that would allow users to explore the internet in an immersive way to experience instead of just watching.
This platform is called the Metaverse. Zuckerberg pointed out that people in the metaverse can work, play, learn, shop or collaborate with their virtual avatars no matter where they are in the world. Whether enjoying a music concert with friends or working from home, the Metaverse aims to be the next frontier of the Internet where people will interact in virtual worlds.
Goldman Sachs estimates that the Metaverse could offer its participants an $8 trillion long-term revenue opportunity. Unsurprisingly, Meta Platforms is pulling several strings to seize this opportunity. The social media giant’s latest move could turn out to be its most significant yet.
Meta Platforms takes a major step into the Metaverse
Meta Platforms has spent $10 billion to begin building the Metaverse in 2021, a number it says will continue to grow over the next few years. The company is building what it says is the world’s fastest supercomputer to accelerate Metaverse-related workloads and expects it to be ready by mid-year.
Now, Meta Platforms seems to have taken a big step towards monetizing the Metaverse with its virtual reality (VR) platform, Horizon Worlds. The company announced that it is currently testing a way for creators and developers to sell virtual items and experiences set in the three-dimensional worlds created in the Metaverse. More simply, Horizon Worlds users can purchase items or unlock new areas within the app.
Meta Platforms takes a 25% share of the money invested in Horizon Worlds after deducting platform fees, which can be up to 30%. Additionally, Meta launched a creator bonus program to encourage the development of virtual worlds. In a press release, the company said that “creators will be rewarded for building worlds that take the longest time.”
All this indicates that Meta Platforms is focused on attracting more users to its virtual reality platform. As reported by The Verge, as of February this year, Horizon Worlds had 300,000 monthly virtual reality users and the developers had created 10,000 virtual worlds on the platform.
Compared to Roblox (NASDAQ:GOLF -4.49%), another Metaverse player that operates an online platform for developers to create, publish and build 3D worlds, those numbers appear to be low. Roblox has over 11 million virtual worlds on its platform, thanks to a cumulative base of over 29 million developers. As of February 2022, the company had 55 million daily active users, up 28% from the same period last year. Additionally, Roblox users spent 3.8 billion hours on the platform in February, up 21% year-over-year.
Roblox’s cross-platform presence extends to PC, AppleMacs and iOS, alphabetit’s android, Microsofts Xbox and VR devices like Metas Oculus and HTC Vive. Meta-platforms must therefore evolve in content to attract more users. The good thing, however, is that the company could grow quickly and make money from the metaverse.
A great opportunity is expected
Using Roblox as an example, it becomes clear that the Metaverse could be an important source of revenue for Meta Platforms. Roblox ended 2021 with $1.9 billion in revenue, up 108% year over year. Reservations – which are the virtual currency players buy on the platform to spend on items on the platform – grew 45% over the year to $2.7 billion.
Meta Platforms is therefore sitting on a multi-billion dollar opportunity in this space, and it wouldn’t be surprising if the company outperformed Roblox in terms of long-term revenue, for a few simple reasons. First of all, Meta has a huge user base in its family of apps like Facebook, Instagram, and WhatsApp among others. As of December 31, 2021, there were 3.59 billion monthly active users across the family of apps, giving the company a huge user base to sell its VR platform.
Second, we’ve already seen the company pour billions of dollars into the Metaverse, which could help it deliver 3D content quickly. Third, Meta is the leading provider of VR headsets that serve as windows for users wishing to enter the Metaverse. IDC estimates that the Quest 2 headset controlled 78% of the headset market last year. This hardware dominance could help Meta push its Metaverse content, grow its user base, and improve monetization.
Additionally, Meta hasn’t ruled out the possibility of running ads on its virtual reality platform. Roblox has already shown us that brands display their presence in the Metaverse through virtual stores and product launches. Since Meta is a leading platform for advertisers and marketers, it could greatly benefit from Metaverse marketing.
The focus of meta-platforms on monetizing the metaverse could therefore open up an important revenue stream. Analysts expect Meta’s revenue to grow 18% annually over the next five years, but the new revenue streams Metaverse is tapping into in the form of in-app purchases and ads could help the company grow faster.
Meta Platforms Just Made a Big Step in the Metaverse article first appeared on The Motley Fool Germany.
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This article represents the opinion of the author, which may differ from the “official” endorsement position of a high-end Motley Fool consulting service. Challenging an investment thesis, even one of your own, helps us all think critically about investing and make decisions that help us be smarter, happier, and wealthier.
Suzanne Frey, an executive at Alphabet, is a board member of The Motley Fool. Randi Zuckerberg, former director of market development and spokesperson for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a board member of The Motley Fool.
This article was written by Harsh Chauhan and was published on Fool.com on 04/14/2022. It has been translated so that our German readers can join in the discussion.
The Motley Fool owns shares and recommends Alphabet (A shares), Apple, Goldman Sachs, Meta Platforms, Inc., Microsoft and Roblox Corporation. The Motley Fool recommends Alphabet (C-shares) and recommends the following options: March 2023 long calls on Apple at $120 and March 2023 short calls on Apple at $130.
Motley Fool Germany 2022