Julio Aguilar/Getty Images Entertainment
I warned investors of my marketplace subscriber service that Meta Platforms (NASDAQ:META) was heading for further losses at $163. The stock has now shown signs of bottoming at the $123 level that I projected. Any upside in Meta will be slow due to a stagnating Facebook platform and huge investment in a metaverse flop. In this article, I will discuss why Disney (NYSE:DIS) is the better metaverse play.
The metaverse is set to be the future of commerce
In December of 2021, Bloomberg analysis said that metaverse revenues could reach $800 billion by 2024. This was a big increase from an earlier prediction of $500 billion and the cryptocurrency bear market may have pushed that further out.
In another report from analysts at McKinsey, which was written in June 2022, they thought the stakes were higher:
“We estimate it may have a market impact of between $2 trillion and $2.6 trillion on e-commerce by 2030, depending on whether a base or upside case is realized.”
Many big-name brands and corporations are entering the metaverse with Walmart (WMT) being a recent adopter. Walmart launched two experiences on the online gaming platform Roblox (RBLX).
The retail giant has an experience that will feature a blimp dropping toys, a music festival, games, and a store of virtual merchandise, or “verch”.
Walmart is looking to the future of commerce and how it can combine its physical stores with an online presence.
An early look at the Meta Platforms world was ridiculed
Meta Platforms is facing pressure from investors and ridicule over its metaverse platform. Palmer Luckey, the founder of VR headset firm Oculus, which Facebook acquired in 2014, was scathing in his assessment of Zuckerberg’s metaverse.
“It’s not good, it’s not fun,” he said. “Most people on the team would agree it’s not a good product.”
Early users also complained of unrealistic avatars, sexually aggressive behavior, and general bugs in the system.
Early user traffic has also been a flop with users not returning and the company having to scale back its predictions for 500k daily users to 280k. The latest reports say that only 200k is likely possible.
Critics of these types of numbers are actually being naïve about their judgment of the metaverse when they are occurring at the depths of an almost one-year bear market in cryptocurrency. Despite that, Meta Platforms is on an uphill battle to provide fun, as the Oculus founder said.
Another problem for the stock price of Meta is that investors are not happy with the company’s strategy, where the Facebook platform is being ignored and huge sums are being dumped into metaverse spending.
These thoughts were echoed in an open letter from Brad Gerstner, founder and CEO of technology investment firm Altimeter Capital:
“Meta has drifted into the land of excess – too many people, too many ideas, too little urgency.”
The letter drew attention to Meta’s “startling” financial decline over the past 18 months, which included a steep drop in the stock price. “And notably, this decline in share price mirrors the lost confidence in the company, not just the bad mood of the market,” Gerstner wrote.
Gerstner singled out a three-point plan which included:
- Cutting employee-related expenses by 20%.
- Reduce capital expenditure by $5bn.
- Limit metaverse-related expenditures to $5bn per year.
Rather than investing more heavily in artificial intelligence (AI), which Gerstner thinks would be worthwhile, “the company has announced investments of $10-15bn per year into a metaverse project … that it may take 10 years to yield results. An estimated $100bn+ investment in an unknown future is super-sized and terrifying, even by Silicon Valley standards.”
Disney can leverage the real power of the metaverse
In the Bloomberg research noted earlier, they said: “Social, persistent, shared, virtual 3D worlds, the metaverse is the convergence of the physical and digital realms in the next evolution of the internet and social networks using real-time 3D software.”
If we look at the difference between Meta Platforms and Disney, where is the physical realm for Meta? The platform will try to onboard users from its Facebook platform, but that is already a digital realm. The metaverse will be a competitive space and even if Meta can bring users to the virtual world. Those users will probably walk away to absorb themselves in rewarding areas such as play-to-earn gaming.
That is why Disney will have an edge over Meta because it will leverage the power of its Disney brand and can combine it with its physical parks business. Donning an AR headset would be much more fun if you can explore a Star Wars-themed universe, or walk through a park while hundreds of Disney characters are running around.
Disney CEO Bob Chapek confirmed that the metaverse would be linked to Disney+, saying the media giant’s metaverse would exist alongside the streaming platform. Users would be able to experience park rides in virtual reality and the most important part of this is that “the 90 percent of people that will never ever be able to get to a Disney park,” to experience it in virtual reality,” Chapek said.
Disney now has an angle to monetize a huge user base that may never get to experience Disney World due to financial or migratory constraints.
“We wish every person would have the opportunity to come to our parks, but we realize that’s not a reality for some people,’ Chapek added. “We have before us an opportunity to turn what was a movie-service platform into an experiential platform and give them the ability to ride Haunted Mansion from a virtual standpoint.”
From a valuation standpoint, Meta and Disney at valued at a similar level with Disney having a forward P/E ratio of 19x, while Meta has 13x. They are valued at 2.27x sales and 3.13x sales respectively. But, Disney saw Q-on-Q growth of 26% against the -0.90% of Facebook in Q2.
Conclusion
Despite the cryptocurrency bear market, the metaverse has a bright future. Some analysts are jumping on negative metaverse data at the depths of a crushing crypto bear market, but they do not dig deep enough into the underlying trends and dynamics. In a metaverse future, many are fixated on the Meta Platforms offering, but there is no physical connection or storytelling involved in the company’s plans. They are throwing huge sums at the concept without any short-term milestones and that will add headwinds to the stock price. At a similar market valuation, Disney is also going after the metaverse, and it wants to combine the virtual world with its Disney+ streaming service. The company will also leverage its parks business and has the opportunity to monetize a huge user base that may not ever experience the park experience. Disney is the better on all counts.
Be the first to comment