Meta: the biggest bet ever made on a new technology

What Meta (formerly Facebook) has done on the metaverse would be the biggest bet ever made by a tech company on a new, unproven technology. 

Meta’s $70 BILLION spend on the metaverse is biggest bet ever by a tech company on an unproven new technology https://t.co/BxxVVOCCup pic.twitter.com/EosbWITdXt

— Matt Navarra (@MattNavarra) September 28, 2022

According to some recent analysis, in total the company has already invested about $70 billion in the design and development of its metaverse, although it is unclear how this figure was calculated. 

Meta: the largest investment in history in the development of a new technology

The same analysis also looked at other unproven technologies that other tech companies have invested in in the past, and found that Meta‘s $70 billion investment far exceeds them all. 

The second largest bet by amount invested would be self-driving cars, on which more than $27 billion has reportedly already been invested. While this figure does not include the investments made by Tesla, it is overall much lower than Meta’s investment, which includes only the funds committed by the company that until a year ago was called Facebook. 

Coming in third place would be the $3.4 billion invested by Apple to design and create the iPhone, which was the first real smartphone with a touch screen comparable to a computer. 

For example, for the design and development of Android, Alphabet, which at the time was still called Google, invested “only” a little more than $1 billion. 

Hence, Meta to date would have invested twenty times as much in the metaverse as Apple invested about fifteen years ago to create the iPhone. 

In both cases, it was a colossal gamble, because before their release there was not enough information to be able to say that there was a good chance of success. 

Similar things already existed, but either based on much less advanced technology, as in the case of the iPhone, or with still extremely immature market penetration, as with the metaverse. 

In other words, it would be an absolute stretch to say that Meta already has all the information to be able to believe it has a very good chance of success, so the initiative to dive 100% into the metaverse looks more like a gamble than a venture based on concrete and already established prospects. 

A $70 billion bet might as well be considered an excessive gamble, and in fact the financial markets have not rewarded it at all. 

Meta’s share price on the stock market

When the company Facebook announced last year that it would change its name to Meta to delve into the metaverse, its share price on the stock market dropped from $340 to $310 within a week. Later, when some serious economic problems emerged, the price plummeted from $320 to $240 in a single day in February this year. 

Thereafter, due to the Nasdaq’s continued widespread declines, the price fell to the current $140 or so. 

Compared to the values before the name change, the share price on the stock exchange so far has lost more than half of its value (-59%), returning to the lows of March 2020 when the financial markets collapsed due to the beginning of the Covid pandemic. 

Indeed, current values correspond to those of March 2017, so over the course of late 2021 and these early months of 2022, the value of Meta shares, formerly Facebook, has wiped out all the gains of the past five years. 

Put another way, it certainly appears that the markets consider Meta’s colossal investment in the metaverse to be an excessive gamble with little chance of success. 

The key to understanding these fears is probably the perceived health of the company. 

Until 2018, Facebook was commonly believed to be a large, high-growth company. 

However, in 2018 it had a very serious problem with the ill-famed Cambridge Analytica-related issue. This was a real scandal that cast a wide and deep shadow on the real performance of the company. 

Since then, sentiment toward Facebook has never returned to what it was before, even despite the resounding success of Instagram, the celebrated social network owned by the same group. 

Because of that scandal, Facebook’s share price on the stock market plummeted 34% within six months at the end of 2018, but over the course of 2019 it recovered all its losses. In March 2020, there was another collapse, this time due to the start of the pandemic, but already during the following month it had recovered all its losses. 

So by April 2020 the value of the company was back to the levels of June 2018. During 2020 and 2021 there was a real boom due to the colossal bullrun triggered by the start of the various QEs of central banks during the same period, but for Facebook’s stock this bullrun came to a halt just as they announced the name change to Meta and the metaverse project in October 2021. 

For example, the Nasdaq bullrun stopped three months later, namely in January 2022. 

Compared to all-time highs, Meta’s stock is now losing 63%, while the Nasdaq “only “31%. 

Therefore, it is more than evident that the financial markets have punished Meta’s turnaround, probably precisely because they consider the colossal bet on the metaverse to be a real gamble. 

The metaverse market

It is worth mentioning that currently the metaverse is already a concrete reality, but still much smaller in size than, for example, the social networking business that has allowed the Facebook/Meta company to explode over the past fifteen years. 

There are two critical issues. 

The first relates generally to the ability of this new technology to really conquer some sort of mass adoption, to reach a size similar to that achieved in the past by social networks. This hypothesis is not only by no means a foregone conclusion, but many consider it unlikely. 

The metaverse is already a reality in the gaming world in particular, but not everyone agrees that outside of that sector it can achieve equally attractive results. There have been similar attempts in the past that have failed soundly, so the doubts are legitimate. 

The second is even more relevant, as far as the specific case of Meta is concerned. That is, will a company that seems to be in an identity crisis, and that decides to bet a colossal amount of money to achieve uncertain results, really be able to sustain and proliferate this risky undertaking? 

For now, the markets seem decidedly negative about this prospect, not least because they are struggling to understand concretely how Meta’s metaverse will actually be able to expand and generate cash flows comparable to those currently generated by the social networks of the Meta group. 

The online gaming industry is by all accounts a rich industry, but certainly not as rich as the social network industry. 

Moreover, there is another aspect that casts a gloomy light on Meta’s idea, namely the fact that they were by far the only technology company to have invested so much in the metaverse. If the latter were really a colossal business, one might expect other big tech companies to jump in as well, but that has not happened. 

For example, the share price of Alphabet (formerly Google) on the stock market peaked as recently as February this year, and since then it has lost only 34%, in line with the Nasdaq. Alphabet, as far as we know, has not invested any really significant amount in the development of the metaverse.