Virtual Reality: Apple or Meta?
Recently, virtual or augmented reality has been widely discussed. Recently, Apple itself has jumped into this market and shuffled the cards for other players. $META+2.1% has been in this business for some time and it has also been a stumbling block for the stock (at least at the beginning). How does the market view these companies now?
Apple and Meta are generally not seen as competitors. Apple generates most of its revenue from its hardware devices and locks in a lot of those users with its software and services. Meta generates most of its revenue from its Facebook and Instagram ads.
Yet the two FAANG companies are gradually evolving into adversaries. After years of criticism of Meta's data tracking practices, Apple finally disrupted Meta's ability to create targeted ads with a privacy-focused iOS update in late 2020. Apple also recently introduced its first mixed reality device, the Vision Pro, as a challenger to Meta's Quest headset in the nascent metaverse market.
Apple stock has been much more interesting to investors in recent years, and it shows in its growth. Over the last 3 years, Apple stock has risen 115%, but Meta stock has only risen 15%.
Apple's growth is cyclical as it generates more than half of its revenue from iPhones. The last major iPhone upgrade occurred in fiscal year 2021 (which ended in September 2021) after it finally entered the 5G market with the iPhone 12. Its growth cooled in fiscal year 2022. Apple keeps a multi-year gap between when it comes to a major change/innovation in its phones. Until then, it sticks with the old design and doesn't make big changes.
Apple
AAPLAt first glance, Apple's growth may seem slow and uninteresting. In hardware, it looks like this: sales grew 8% and EPS 9% in fiscal 2022. In fiscal 2023, analysts expect sales to decline 3% and EPS to decline 2% as they try to sell more iPhones, iPads, and Macs. However, all three of these hardware lines have bounced back from cyclical declines before, and the arrival of the Vision Pro next year could light a new fire in the hardware business.
On the other hand, Apple's services division - which includes Apple Music, Apple TV+, Apple Arcade, Apple Fitness+, the App Store, iCloud and other services - continues to thrive. It ended the second quarter of fiscal year 2023 with 975 million paid subscriptions across all of its services, an 18% increase from the year-ago quarter.
Apple
AAPLThe expansion of this ecosystem, ensures that Apple's hardware sales will grow again after the short-term adverse economic environment subsides. It's also still sitting on $166 billion in cash and marketable securities, giving it plenty of room for new investments and acquisitions, and it just approved a new $90 billion stock bu yback plan .
It has bought back nearly 40% of its shares over the past decade and has increased its dividend every year since resuming those payments in 2012. But Apple's forward yield of 0.5% is still paltry compared to other tech stocks, and its stock may seem expensive at 27 times future earnings.
The company's meta shares have seen a big decline in recent years, but have rebounded with a steep rise in recent months.
Revenues and EPS are down 1% and 38%, respectively, in 2022. This slowdown has been caused by three main issues: Apple's iOS update, intense competition from ByteDance - TikTok and unfavorable conditions in the digital advertising market. Investors also didn't like the fact that the company was spending huge sums on research in the sector just for VR. This was also one of the main reasons why the stock took such a nosedive.
Meta
METAMeta is tweaking its advertising algorithms to reduce its reliance on third-party data. This is to counter Apple's iOS changes.
It is also aggressively expanding its Reels short-form video platform to counter TikTok. But Meta is also burning billions of dollars in its Reality Labs division, which focuses on developing virtual reality devices. That segment only generated $2.2 billion in revenue last year (2% of what Meta makes on its family of apps), and made an operating loss of $13.2 billion. It expects the division's losses to deepen again this year. Another product is due out in the fall
The bulls have their eyes on the fact that Meta still reaches 3.81 billion people every month with its "family of apps" (Facebook, Messenger, Instagram and WhatsApp) - so the growth of its ad business could easily accelerate again once the ad market gets back to its old ways.
Meta
METAAggressive investments in metaversion could also eventually pay off as more social media users migrate to the virtual reality ecosystem.
Meta is still paradoxically profitable, ending the first quarter of 2023 with $41 billion in cash, cash equivalents and marketable securities, and has bought back about 10% of its stock over the past three years.
Analysts expect Meta's revenue and earnings to grow 8% and 36% this year as growth in its advertising business offsets its advertising spending. Those are impressive growth rates for a stock that trades at 22 times forward earnings.
Personally, I have both stocks represented in my portfolio. It's hard to pick which one is the winner here in terms of VR. For me, Meta has more potential in growth than Apple, as it's a much n'smaller company in terms of market cap and thus cheaper. I'm not going to speculate either and prefer to hold them both. Each is unique in its own way and has a different reason for being included in my portfolio. Does anyone share these investments with me or have a different opinion on these 2 FAANG companies?
This is not financial advice. I am providing publicly available data and sharing my opinions on how I would handle the situations myself. Investing is risky and everyone is responsible for their decisions.
