Facebook’s (FB) rebranding to Meta reflects its intention to get a head start on its rivals as the advent of the metaverse potentially ushers in a whole new era.
Mizuho analyst James Lee thinks that in contrast to Facebook following trends over the past several years, investing “on the front-end of the innovation curve,” is a “strategically” positive move.
“We believe the metaverse opportunity could be as big as existing social media in terms of addressable users as the new social experience represents the next generation of internet after years of domination by mobile and PC,” the 5-star analyst further explained.
The new virtual world does not lack for use cases; games, commerce, fitness, education, entertainment and collaborative work efforts are just some of the niches which will be present in the avatar realm.
However, mass-market adoption could still be a while off; devices will need to improve both in form and performance, while the current price point for hardware of $300 will need to drop and become more affordable to widen the appeal beyond game enthusiasts.
Creating this new universe won’t be cheap, either; Facebook has already devoted $10 billion in FY21 toward the project.
Metaverse aside, following Facebook’s recent travails, Lee thinks the current valuation represents a compelling opportunity for investors, and the analyst counts several catalysts which will help the multiple “expand to the historical average.” These include including FB outperforming peers when faced with Apple’s IDFA and ATT user data initiatives and a pickup for SMBs (small and medium-sized businesses) action triggering an “upward revision” to the FY22 consensus revenue growth estimate of 20%. Additionally, Lee expects “downward revisions to the expense growth guidance” of roughly 30% year-over-year in FY22, citing management’s recent history of issuing an overly conservative outlook.
To this end, Lee reiterates a Buy rating on FB shares along with a $450 price target. This figure implies ~35% upside potential from current levels. (To watch Lee’s track record, click here)
Most of Lee’s colleagues are on the same page; FB stock has a Strong Buy consensus rating, based on 29 Buys vs. 6 Holds and 1 Sell. The analysts expect shares to add ~22% of value over the coming months, given the average price target clocks in at $405.59. (See FB stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.