No one is surprised by the strategic change made by Meta ( NASDAQ:META ). In addition to the name change, Meta’s strategy includes reporting financial data in two distinct segments: Family of Apps: Facebook, WhatsApp, Instagram, and Messenger; Reality Labs: Horizon Worlds, Quest, Portal, and Spark are examples of augmented reality and virtual reality products.
The tone of this article would be different if it weren’t for the conscious effort to prioritize the metaverse through its rebranding. The consolidated financial statement from Meta’s 2021 Annual Report shows that the segment’s revenue growth was an impressive 36%. Meanwhile, Reality Labs’ operating margin indicates that for every $1 in revenue, the company is losing $4.48. Currently, Reality Labs is expected to suffer even more significant losses in 2022.
The management of Meta and bullish analysts would likely claim that this is a classic J-curve. As the technology is developed, the first phase of the J-curve is the capital-intensive, negatively geared phase. Due to the low capital expenditures needed for software, the adoption and scale of that technology will, once complete, put the business on a path of higher revenue and significantly higher margins. However, there are good reasons to think adoption will be less impressive.
What Exactly Is the Metaverse?
According to author and venture capitalist Matthew Ball , the metaverse is “a massively scaled and interoperable network of real-time rendered 3D virtual worlds that can be experienced synchronously and persistently by an effectively unlimited number of users with an individual sense of presence.” Although this is the most comprehensive definition available, it fails to account for the convergence of numerous technologies, such as computing power, augmented reality, and virtual reality, that are necessary to make it happen.
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