Both Meta Platforms and Roblox are building a Metaverse, who has more potential to do it?
Let me ask everyone a question first: Do you believe in the meta universe?
we believe. We believe it very much.
It’s like believing that Musk’s spacecraft can one day lead mankind to Mars.
It is like believing that the Internet can change the world in the future when it was born.
Just as Jack Ma believed that he could one day “make the world not difficult to do business”.
We not only believe very much, but also look forward to the day when the meta universe will arrive in our lifetime. And we believe that Meta Platforms will be the world’s most promising companies of the yuan cosmic mess, because they are already in the business of making money have charged enough money to make their dollar carry out his universe, and we have been cast into the unimaginable A huge amount of money is available, and we have planned to recruit 10,000 engineers in Europe to truly engage in this business. We believe that Metaverse will surely kill the current ios and Android mobile Internet operating systems dominated by Apple and Google in the future , and lead mankind into one A meta-universe digital world where real reality and virtual world interact.
The goal of Roblox (RBLX) is to create a meta-universe for the “common human experience” through user-generated content (UGC). Tencent is also optimistic about Roblox’s development in the meta-universe field. Its chief strategy officer James Mitchell said: I would not say that meta-universe is a type. Metaverse is more like a comprehensive opportunity, which allows different types of games to be experienced in the same social graph and software. So if you look at Roblox, Roblox is a meta-universe for young players. (From Tencent’s 21st quarter financial report conference call)
Year-to-date performance of Meta Platforms and RBLX stocks
The year-to-date performance of Meta Platforms and RBLX stocks (as of October 29, 2021).
We will start discussing their respective year-to-date performance from March 10th, as Roblox shares are listed on the same day. Roblox stock has been very popular since it first went public in March, and by June it had risen close to 45%. However, this upward momentum quickly disappeared. In the September/October retracement, its gains have completely disappeared. However, it bounced back later, and Roblox’s stock price has risen by 20.6% year-to-date.
By the way, as of October 29, the year-to-date increase of Meta Platforms stock (since March 10) is also 20.6%. It is worth noting that its stock has maintained a good start in 2021 and has become stronger as the year progresses. Before the recent retracement, it achieved a year-to-date gain of more than 40%. The overall weakness of social media stocks has also affected its stock prices. At present, these two stocks still lead the S&P 500 index funds. In addition, their gains are only slightly lower than the 22.4% year-to-date return of the Nasdaq 100 index fund.
Meta Platforms are changing themselves by building a meta-universe
Meta Platforms has realized the huge market opportunity hidden in the meta universe. Zuckerberg emphasized that the goal of Meta Platforms is to “help 1 billion people and hundreds of billions of dollars a day achieve digital interaction in the meta universe.” Although it is difficult to determine how big this opportunity is, Wall Street analysts predict that the market size of Meta Universe will reach $82 billion by 2025. This will be slightly lower than Meta Platforms20’s revenue of $86 billion in fiscal year 20.
Analysts believe that the current meta-universe opportunity is still in its infancy. Game platforms such as Roblox and Epic Games are pioneers in providing “meta-universe” experiences through games. But Meta Platforms believes that it will extend these experiences beyond the “game meta-universe”, into the physical and virtual worlds, and cover a large number of consumers and businesses.
Although Meta Universe is currently only used in the game field. But Meta Platforms has realized that it needs to build the next computing platform to compete with platforms like iOS and Android or even subvert it. With the development of the mobile Internet, these platforms will become stronger. Meta Platforms believes that Meta Universe will help promote and break the limitations of these platforms.
Interoperability will be the key to the success or failure of the meta universe. It remains to be seen how Meta Platforms do this. But Meta Platforms has realized that this will be the basis for the success of its transformation. Mark Zuckerberg also stated on the earnings conference call that before he started to change the company’s name to Meta Platforms, he was already considering entering the meta universe. Since acquiring Oculus in 2014, Meta Platforms has been investing in this project. Meta Platforms has invested a huge amount of money in this field that no one can imagine. Meta Universe will be the key to Meta Platforms’ future revenue diversification, consolidation of its position in the next computing platform, and the possibility of rewriting the company’s progress in the future.
Between Roblox and Meta Platforms, who has the potential to build the next computing platform?
Although the slogan of Meta Universe is easy to chant, it is very costly and extremely challenging to implement. But we think that Meta Platforms already has a lot of high-profit businesses to support their entry into the meta universe.
The company emphasized that it will invest a lot of money to build the infrastructure of Meta Universe. As a result, operating profit in fiscal year 21 will be reduced by 10 billion U.S. dollars. In addition, Meta Platforms also predicts that its capital expenditure in fiscal year 22 is expected to be between US$29 billion and US$34 billion. This is a significant increase from the $19 billion in fiscal year 21.
Although it requires a lot of investment, we believe that Meta Platforms is very capable of meeting these challenges. Whether they can succeed is another matter. After all, the company has a lot of very profitable businesses to support their meta-universe project.
It is expected that the company’s core advertising business will still generate substantial revenue and profits. These estimates have not taken into account the potential income that Metaverse might generate. Currently, it is expected that by 2026, Meta Platforms’ revenue will grow at a compound annual growth rate of 18.5%. We believe that the digital advertising market is still expected to grow rapidly. By 2024, global spending on digital advertising is expected to reach $645.8 billion, a compound annual growth rate of 14%. In addition, the global share of Meta Platforms is also expected to increase from 22.3% in 2020 to 25.2% in 2023.
Although, Tencent also has the ambition to create a meta universe. However, it recognizes that this is a “long-term rather than immediate opportunity.” In addition, it also recognizes that the current social networks can also realize the ambitions of the meta universe. Tencent stated in the second quarter earnings conference call: “We believe that we are one of the few companies in the world that have professional social networking platforms, online game management experience, and digitize real-world assets in the meta universe. (From Tencent No. Second quarter earnings conference call)”
Therefore, even Tencent stated that there are only “a few companies” in the world that have the ability to build a true meta-universe. We believe that Meta Platforms is undoubtedly one of these companies with such capabilities and resources.
Roblox is the leading mobile gaming platform among iOS users. According to the statistics of Sensor Tower Q3, Roblox’s downloads on the App Store ranks third in the world. Although Roblox and Fortnite are both world-leading meta-universe gaming platforms. But Roblox’s diverse UGC content is more popular among children, while Fortnite focuses on battle royale shooting games. In addition, Roblox’s emphasis on immersive experience has also brought it great success.
Roblox’s popularity as a game meta-universe has been widely recognized. This is why its stock price is much higher than other gaming peers such as Electronic Arts or Activision Blizzard. Although it is already very popular, its user base is still expanding rapidly. Its daily active users have increased from 17.1 million in the second quarter of fiscal year 2019 to 43.2 million in the second quarter of fiscal year 21, with a compound annual growth rate of 58.9%. Even so, there are still people who worry that Roblox’s user growth will slow down, because Roblox’s quarterly daily active user growth rate only increased by 2.6%.
However, the company’s update in August eliminated these concerns. Roblox reports that its daily active users increased by 32% year-on-year in August to 48.2 million. It is also 3.4% higher than the 46.6 million daily active users in July. Therefore, we still believe that Roblox’s recent update shows that it is still the most popular meta-universe gaming platform.
We believe that Roblox has a very strong creator ecosystem. This is one of Roblox’s core competencies. Therefore, this bodes well for the company’s game meta-universe. Despite this, we are still uncertain whether Roblox has the ability and resources to create a true meta-universe. Unity even calls the metaverse a “revolution.” It emphasizes: “Meta universe will become the world’s largest computing platform revolution-even greater than the revolution in the mobile field and the network field.”
Roblox’s revenue has also been growing rapidly. Its revenue increased 116% year-on-year in the second quarter of fiscal year 21. However, its operating profit margin is still at a loss. Despite the amazing revenue growth, the company’s operating leverage has been elusive. As of the second quarter of fiscal year 21, Roblox’s LTM operating margin was -24.8%.
Roblox pays a large portion of its revenue to developers. This is reasonable because Roblox is a UGC platform. However, this also hinders the company’s ability to turn losses into profits. In addition, the proportion of this part of the total income is still very high. In the second quarter of 21, its proportion of total revenue was 29%.
In our article about Roblox in June, we emphasized that although Roblox’s free cash flow is profitable, it mainly depends on the growth of its deferred revenue. Despite operating losses, the robust growth of its deferred revenue has kept Roblox’s free cash flow profitable. However, we also emphasized: “This requires the company to continue to rapidly increase bookings to offset the huge operating expenses in order to keep its free cash flow continuously positive.”
This means that Roblox needs to maintain strong growth in bookings in order to maintain its growing developer fees. However, we saw in Roblox’s second quarter earnings report that its deferred revenue has been significantly declining. In the second quarter, RBLX’s deferred revenue was US$1.07 billion, which was significantly lower than the US$1.15 billion in the first quarter. This means that Roblox’s booking growth is slowing down.
The growth of Roblox’s booking volume is inseparable from the healthy growth of its free cash flow. From its operating cash flow and free cash flow, we can easily see that the growth of bookings has promoted the healthy growth of Roblox’s free cash flow. Therefore, in the future development process, investors must pay attention to when Roblox’s booking growth will slow down.
We can also easily see that Roblox cannot undertake the task of building the next computing platform like Meta Platforms. Although Roblox has a stable net cash balance, it still has not realized EBIT (earnings before interest and taxes). In addition, although Roblox’s free cash flow has improved due to continued strong growth in bookings. But in contrast, Meta Platforms already has a lot of high-profit businesses and mature business models, and there is a large amount of free cash flow. In addition, Meta Platforms business model also has a high moat, which is expected to further strengthen its influence in the digital advertising market.
Therefore, we believe that Meta Platforms will be the most promising company in the world to successfully build a true meta-universe. It will be interesting to see how the meta-universe of Meta Platforms differs from Roblox. Perhaps, these two platforms can interoperate in the future. But Metaverse cannot be done by a single company. If they want to overthrow the dominance of Apple and Google in the field of mobile Internet, they will definitely need the cooperation of other companies and developers in the process of building a true meta-universe.
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/both-meta-platforms-and-roblox-are-building-a-metaverse-who-has-more-potential-to-do-it/
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