Virtual reality is finally ready for the masses. Unfortunately, the masses are still not ready for virtual reality, after years of negative press and uneven promotion.
Meta Platforms on Tuesday unveiled Quest Pro, its $1,499 VR headset with eye and face tracking and color video passthrough for mixed reality. It’s the technology Meta badly needs to grow its business.
Still, investors should continue to avoid Meta stocks.
In many ways, Meta is a lesson in the dangers of investment fetishism. Like Facebook, the Menlo Park, Calif.-based company has become an icon. Over the course of two decades, the company has grown from an idea in a Harvard dormitory to a global giant with nearly three billion monthly users. Founder and CEO Mark Zuckerberg took a scrappy startup and became the homepage for 60% of the world’s population with an internet connection.
Facebook seemed unstoppable. Although members disliked its clunky user interface and confusing privacy choices, they were obligated to maintain their accounts. Facebook was where friends and family gathered online.
Unfortunately, the company was built on quicksand controlled by competitors. This flaw was revealed in 2020 when Apple (AAPL) changed how its mobile operating system works, reducing ad tracking. It was a devastating blow to Meta’s digital advertising business.
This change alone caused Meta to lose $12 billion in revenue, according to a report by Forbes.
Meanwhile, bad privacy choices made long ago have come back to haunt Zuckerberg. At first, Facebook relied heavily on third-party developers to drive its growth. User data and demographics were regularly made available. The flaw in this business model became apparent in 2018 when Cambridge Analytica used this data to conduct disinformation campaigns in the run-up to the 2016 presidential elections.
VR is Zuckerberg’s plan to own the foundation and build business models with Meta at its core.
This new strategy popped up all over the Quest Pro reveal on Tuesday. Several large companies seemed to be hanging on to Meta’ VR coattails. Among other agreements, the company announced partnerships with Microsoft (MSFT) for its Teams, Office, and Windows 365 software suites. The Redmond, Wash.-based company’s official blog notes that Xbox Cloud Gaming will also be ported to Meta headsets. YouTube is moving its massive VR video platform to Quest. And NBCUniversal will bring its Peacock streaming app and other content to Quest headsets, according to a report on Variety.
Zuckerberg says the Quest Store, Meta’s VR app store, has generated $1.5 billion in sales to date, and 33 of the 400 VR titles have earned more than $10 million there so far .
However, even with these impressive stats, Meta’s VR business is losing out. Reality Labs, its VR subsidiary in the second quarter of 2022, lost $2.8 billion, compared to $2.4 billion a year ago. Revenue jumped to $452 million, up 48% from a year ago.
And that’s the catch. Meta’s VR business just isn’t big enough to compensate for its lost revenue due to changes to Apple’s operating system. Many people believe that virtual reality will never be fundamental at Meta. Convincing people to buy expensive computers to wear on their face is a tougher sell than creating a smartphone app for a device most people think they can’t live without.
In this context, Facebook is just an incredible wonder that reaches 3 billion people. Unfortunately. that business is now shrinking as billions of bored smartphone users waste time on TikTok and other social media rivals instead. Meta is also under constant legislative attack due to its past privacy indiscretions.
Investors tend to fetishize companies like Meta, thinking they should be part of the Meta team. But unless you’re an employee, there’s no Team Meta – only Team You. And you only get something from Meta actions when they go from the bottom left corner to the top right corner of a chart. If stocks are not capable of making you more money, they should be discarded and avoided.
Fetishizing a company is easy to do when you consider that Zuckerberg made himself and the early shareholders fabulously rich through a series of brilliant maneuvers during Facebook’s growth phase. From the company’s IPO in 2012 through August 2021, shares jumped 847%, to $373. Zuckerberg’s net worth has catapulted to $142 billion.
However, since then everything has been downhill. Shares fell to just $128.54.
It’s too early to completely cancel virtual reality at Meta, but it’s irrational and excessive to bet that Zuckerberg can fix the near-term growth slump with a $1,500 face-worn computer.
Investors need to let go of their Meta fetish and avoid Meta stocks.
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