meta platform (NASDAQ:metaFormally known as Facebook’s parent company) has two sides to the long-term investment thesis, making it one of the most interesting potential long-term soaring opportunities.
On the downside of things, a Recent changes from Apple (AAPL) in terms of application security, it means that neither Facebook nor Meta will be able to effectively monetize their users for revenue, leading to a foreseeable future decline in advertising revenue.
On the positive side, the company has been in the metaverse/AR (augmented reality)/VR (virtual reality) market for quite some time and is one of the major players in the industry. This market is set to explode over the next 10-20 years and could be worth trillions of dollars.
Assuming the Metaverse revenue stream does materialize, the real question for investors is whether the current revenue stream of advertising on social media platforms will grow large enough for other revenue streams to justify the investment. is enough to maintain a reasonable rating until
Let’s break them down.
Downside: Lower organic revenue
This is nothing new for Meta/Facebook investors. The company relies heavily on tracking user activity across multiple platforms in order to target ads to users more efficiently. Apple’s recent changes to its guidelines have limited the company’s ability to advertise effectively and have led advertisers to stop or renegotiate spending on the platform.
This will Company earnings fall short of expectations and decline Compared to the previous year, the company’s stock price has fallen significantly. This is due to the fact that the company was trading at a higher multiple due to its previously projected higher earnings and EPS growth, both of which have been downgraded.
That growth rate is set to slow even now, with analysts expecting the relative decline in earnings to reverse somewhat and the company to report modest increases in sales and earnings over the next few years. I’m here.
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The problem here isn’t just that the company’s revenue growth will slow further. After the initial uptick, profit margins will take a hit as SG&A and R&D expenses will need to be sustained to drive the transition to the Metaverse, AR. And the VR market. This means that even if the company should enjoy higher profit margins in the next few years than it does today, it will decline after 2026.
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While these numbers may look bad to some long-term investors, they’re likely to fare better in the long run as the company moves into other business segments and moves away from relying solely on advertising revenue from social media platforms. I don’t think you need to worry about Facebook, Instagram, etc.
Positive of Negative: Transition
The bottom line is that even though revenue growth has slowed in the long term from the company’s core social media organic ad revenue, it has sufficient resources to become a more diverse company. Let’s dive into the numbers.
First of all, even if the company falls short of the aforementioned expectations, they still have A whopping $12.7 billion in cash and equivalents plus an additional $27.8 billion in short-term investments, totaling more than $40 billion in liquid cash reserves. Even if gross margins drop from $95 billion to $80 billion, he can stay on hand during the transition. spend about $50 billion on operating expensesas the company said, this can certainly be reduced.
They are Aiming to reduce costs by about 10% in the next quarter, That means the company will save about $5 billion on those costs, and it can go further if it wants to.
Another positive here is that the company has zero long-term debt. That means there’s an opportunity to tap those markets for a short period of time during the transition, especially if we get into a recession and interest rates return. This makes it easy for him to maintain a period from 2030 to 2040 that fully embraces the Metaverse, AR and VR.
Positive: trillions of possibilities
This market breakdown is divided into two parts: Metaverse and AR/VR.
According to market experts, the metaverse is growing at a very high rate and is expected to reach over $1.5 trillion by 2029, growing at a CAGR of almost 48%. The industry is categorized into three: software/platform, hardware, and services. Meta does all three in some way. That means meta has the potential to step into each segment and maximize impact.
The reason I’m bullish on Facebook/Meta’s leading potential in this space is that their platform already constitutes one of the largest in the industry. What I mean is that they work with major segments set to grow:
1- Social media Destined to become one of the major sub-industries in the AR/VR & Metaverse world, Meta has both Facebook and Instagram, and possibly WhatsApp and Messenger. This means that as the metaverse social media world shifts to AR/VR components, it will likely retain a good chunk of that world.
2- online shopping AR/VR measurements and fittings, and real-time celebrity matching are another major part of the metaverse. Facebook’s Marketplace is one of the world’s leading social e-commerce platforms, and Amazon’s Although it pales in comparison to similar companies (AMZN) platform, they invest heavily in making it a more accessible place for their billions of users each month through Facebook and Instagram.
3- Game and content creation With AR/VR and other segments set to grow rapidly in the metaverse space, Meta’s metaverse launch was already seen as a major source of engagement within the community. Further integration of these systems with Facebook and Instagram will allow millions of people who use these social media sites every day to join the system rather than start new accounts through new or other platforms. There is a possibility. The company’s Oculus is also a huge component of metaverse games and content.
Therefore, in the first few years from 2030 to 2040, Meta, together with all its current and potential subsidiaries, is expected to hold a large market share compared to others operating in this sector. I’m here.
Risk and investment conclusion
The obvious risk here is competition. Companies like Apple are notorious for waiting out certain new industry or feature twists before adopting them with the tens of billions of dollars in spare change around them. They, along with other big companies like Microsoft (MSFTMore), other hardware makers, and social media platforms create a tough competitive environment for Meta.
While I still believe Meta will maintain a significant edge over others, the company’s ad revenue growth continues to decline while it invests heavily in this new industry, and cash flow Quantities can be limited, so you have to keep that in mind. It will happen in the next 5 years or so.
Still, with the potential to generate trillions of dollars worldwide by 2040, and the company being nearly the only company in multiple different segments, with a 15% to 25% market share (my this rapid In the first few years of a growing industry, Meta could become one of the best long-term investments over the next 20 years.
Given that advertising revenue revenue is relatively flat at about $200 billion per year and Metaverse/AR/VR related revenue is growing to the same level at about 50% per year, 2030-2040 Annual sales growth of about 20% to 25% over the years is worth significantly more than the current share price, and could grow at an annual rate of 20% to 25%.
As a result, I am very bullish about the company’s long-term prospects and believe they will be able to weather the ad revenue storm properly while they invest and move into metaverse money.