Why Mark Zuckerberg’s “bet” on the Metaverse is the best strategy!

Mark Zuckerberg has a lot of credit on the tech scene. He certainly deserved that respect. After all, as an alumnus of elite Harvard University, he laid the foundations of his current corporate empire from a bedroom in a shared apartment.

The fact that the idea for the social network did not come from himself, but was stolen by two classmates – the Winkelvoss brothers – is another chapter.

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The thing is, Mark Zuckerberg knows enough about technology. Not only was he able to back this up with his programming skills, but also with his company’s vision for the future.

Risk-taking innovator

He also has the courage to take risks. It is not for nothing that he dared to take the step to Silicon Valley as a student without a diploma in order to lead his loss-making company to global success.

He skillfully avoided impending bankruptcies, as well as being undermined by venture capitalists. In the end, he remained the leader of Facebook and controlled its strategy like no other.

A strategy that worked

So far, investors have done quite well with this development. Facebook – or Metaplatformsas the group is called today, has benefited like no other company from the rise of online advertising and the rapid spread of social networks.

The preliminary peak of this development was the record revenue of nearly $118 billion recorded in 2021 with an operating margin of 40%. Sales increased by 37%. Net income rose 35% to just over $39 billion.

Meta-platforms: a rising star?

However, the success story has stalled. The number of active users seems almost stable with an increase of 4% in the third quarter of 2022. Sales fell sharply by 4% and the net result was halved.

Perhaps the biggest reason for this is the weak economy, which is the first thing that hits a cyclical advertising business. As an investor, you could of course ignore this.

The development of Mark Zuckerberg’s future bet, the Metaverse, seems far more problematic at the moment. Almost all free cash flow was invested there in the third quarter of 2022. In the current year, the losses of the Realty Labs division could amount to ten billion US dollars. The pace of investment could pick up again.

In principle, there is nothing wrong with a company investing in future-oriented technologies. The problem with this, however, is that no one really has a clue what the Meta Platforms metaverse has to offer. As a result, user dynamics are lacking.

From today’s perspective, it is far from certain that the project will be a success. Investors are spooked in this regard, as they rely on tough numbers. Investments should be followed by high returns. There’s a big question mark behind it.

Is Mark Zuckerberg thinking further?

However, Mark Zuckerberg aka Zuck’s “Zock on the Metaverse” might be more elaborate and a frontal attack on the many threats facing Meta Platforms.

These can be described, for example, with increasing legal regulations. The topic of data protection is becoming increasingly important. Finally, Apple is also trying to gain more and more market power with its app store.

The Metaverse: An Attempt to Reboot?

The metaverse could open a new chapter in the use of the Internet and give a new start to metaplatforms. This time, Mark Zuckerberg wants to use his own hardware to have more control and be less dependent on other hardware manufacturers’ platforms. It is precisely these that can jeopardize the current economic model.

Will his strategy work? No one can assess this from today’s perspective. The strategy remains costly for investors for the time being, and above all, it should be painful.

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Frank Seehawer owns shares of Meta Platforms. The Motley Fool owns stock and recommends Meta Platforms.

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