Metaplatforms Inc. (meta, Financials), the company’s stock will rise more than 100% in 2023 despite rising interest rates, significantly outperforming the Nasdaq. This is the result of his two main drivers: profitability and growth.
But perhaps the biggest risk to the company is the acceptance of the Metaverse. With a cash cow like Instagram, would it be wise to invest heavily in the Metaverse? I argue that it is too risky for the metaplatform to support the development of the metaverse because it makes no sense.
Why stocks will skyrocket in 2023
Equity performance may not be as sensitive to valuation as growth or profitability. This is true for Meta, as he has a GF score of 96 out of 100, very strong financial health, and solid profitability and growth trends.
Gross margin of 78.4% is well above the interactive media industry median of 59.24%, net profit of 18.27% is well above the median of -0.03%, and 20.6% of 3-year revenue growth is Exceeds industry average. Median is 6.75%. Meta Platforms has had a very notable mix of profitability and growth over the past three years. What are the prospects for that? Total revenue growth over the next three to five years is estimated at 9.3%, above the industry’s median forecast of 9.16% growth. At the same time, the meta stock appears to be heavily undervalued based on his GF value of $388.28.
Given these trends, it begs the question why Meta Platforms decided to invest in the metaverse instead of focusing solely on Instagram.
The Metaverse currently has many business risks
The metaverse concept is still evolving, and its exact implementation and characteristics may change in the future. However, based on our current understanding of the virtual world, there are some potential business risks to operating in the metaverse.
First, there are serious technical challenges. Building and maintaining a complex, immersive metaverse environment can be technically challenging. Issues such as scalability, stability, and compatibility across various platforms and devices can occur and affect user experience and business operations.
Additionally, there are important security and privacy concerns. Like any digital platform, the Metaverse can be susceptible to security breaches, hacking attempts, and privacy issues. Protecting user data, preventing unauthorized access, and ensuring the integrity of virtual assets are critical for businesses operating in the metaverse.
Metaplatforms need to consider regulatory and legal uncertainties and the risk of economic fluctuations. The metaverse operates across geographic boundaries, making it difficult to determine which jurisdiction’s laws and regulations apply. As a result, uncertainties may arise regarding tax, intellectual property rights, user protection and other legal aspects. Adapting to evolving regulations and maintaining compliance can be a challenge for businesses. The Metaverse could introduce its own virtual economy with cryptocurrencies, assets and markets. However, this virtual economy is subject to volatility, market manipulation and economic risks. Businesses that rely heavily on the metaverse economy can face uncertainty in terms of revenue generation and profitability.
The social media giant should also focus on analyzing user adoption and retention. The success of the Metaverse platform depends on user adoption and engagement. To persuade users to invest time and money in virtual environments, you need to provide compelling experiences, content, and social interactions. Failure to attract and retain a critical number of users can impact the viability of your metaverse business. Producing content online comes with risks associated with content moderation and governance. Virtual worlds can be subject to abuse, including harassment, hate speech, and inappropriate content. Establishing effective content moderation systems and governance mechanisms to ensure a secure and inclusive environment can be a major challenge for the metaverse platform.
Interoperability and standardization are other concerns. The metaverse may consist of multiple interconnected virtual worlds and platforms. Achieving interoperability and standardization across these platforms can be complex and can lead to fragmentation and compatibility issues. Enterprises operating in the metaverse can face challenges in seamlessly integrating services and assets across various virtual environments.
Finally, the Metaverse raises concerns about intellectual property protection. Unauthorized use or duplication of copyrighted content within virtual worlds can lead to legal disputes and financial losses for businesses.
It is important to note that the metaverse is still an emerging concept and the above risks are based on current understanding. As the metaverse evolves and matures, new risks and challenges may emerge, requiring businesses to adapt and develop strategies to mitigate them.
Instagram is a regular cash machine
Instagram has shown solid earnings prospects since being acquired by Facebook in 2012.
The first is advertising, which is our main source of revenue. The platform offers a variety of ad formats, including photo ads, video ads, carousel ads, story ads, explorer ads, and more. Instagram’s extensive user base and engagement make it an attractive platform for advertisers to reach a wide audience. As a result, advertising revenue has contributed significantly to Instagram’s success. With a massive base of over 1 billion monthly active users as of 2021, Instagram offers advertisers a broader reach and potential customer base. Additionally, Instagram users are known to have high levels of engagement and spend more time on the platform, increasing the likelihood of ad interactions and conversions.
Instagram facilitates influencer marketing by allowing brands to work with influencers to promote their products and services. Influencer marketing has grown significantly in recent years, with Instagram’s visual nature and focus on personal branding making it a preferred platform for collaboration. This trend has created an additional revenue stream as platforms can facilitate and monetize these partnerships.
It has many e-commerce and shopping features for marketing, advertising, and monetization. Instagram is expanding its e-commerce capabilities to allow businesses to sell their products directly through the platform. With features like shoppable posts, product tags, and in-app checkout, Instagram aims to streamline the path from discovery to purchase, benefiting both businesses and the platform. These e-commerce efforts could bring significant revenue to Instagram in the future. We have a successful track record of monetizing new features. For example, the introduction of Instagram Stories increased engagement and ad revenue due to the inclusion of ads within Stories. As Instagram continues to innovate and introduce new features, it can explore monetization opportunities to further enhance its revenue prospects.
Meta Platforms now has a fledgling business project with an uncertain future, the Metaverse, and a very successful business, Instagram. The success of Instagram’s revenue outlook hinges on maintaining a balance between user experience and monetization efforts. Overwhelming users with ads or undermining the integrity of the platform can have negative consequences.
Therefore, Meta must carefully address these challenges while leveraging its massive user base and expanding advertising and e-commerce opportunities in order to sustain revenue growth.
In conclusion, the meta platform looks like an attractive opportunity at the moment, but from a business perspective, the metaverse project is too risky a venture.