A growth-oriented fund manager explains why Facebook's metaverse shift will send its stock skyrocket
Facebook just underwent a massive rebranding. And, unlike Google, whose 2015 rebranding as Alphabet gave it a well-known moniker, Facebook's new "Meta" moniker is likely to be less well-known, making it a riskier decision.
And it's one that will pay off, according to RiverPark Funds' chief investment officer, Mitch Rubin. Facebook is one of Rubin's major assets in his RiverPark Large Growth Fund (RPXFX), which seeks "transformative growth potential at a fair price," according to Rubin.
The metaverse, for those unaware, is a phrase for an immersive digital environment that many people, including Mark Zuckerberg, believe is the internet's next frontier. Proponents say that, much as the internet was unthinkable 50 years ago, the metaverse will bring about unanticipated technical prospects.
Facebook, which Rubin described as a "amazing business" with "growing pains" as it deals with criticism from journalists, regulators, and the general public, aspires to fully remake itself from a ubiquitous but divisive social media platform to the monarch of the metaverse.
Given Facebook's past record, Rubin is "skeptical" that its new metaverse economic model would fail, at least in the short term.
Rubin stated, "I absolutely believe this management has earned the benefit of the doubt." "It's a really lucrative business that also makes a lot of money. Who better to find out [whether] there are intriguing things to put that money in to make that company better, stronger, and bigger in the future?"
Rubin's enthusiasm for the metaverse translates into a positive share projection for the stock. Even if the company's strategic adjustment has no immediate impact on its bottom line, he believes the stock will gain in the short run.
That's because, according to Rubin, by reorganizing and separating its metaverse side projects from its primary business, Facebook becomes simpler to value. This year's operational profit would be cut by $10 billion due to the corporation's investments in the metaverse, according to the company.
According to Rubin, Facebook's core business is even more successful than it appears, because its operating profit would have been $10 billion greater if it hadn't experimented with the metaverse. According to Rubin, the market now values Facebook's metaverse business at minus $10 billion, but even critics of the technology should see that it might be profitable one day.
"You have a stock with a lower [price-to-earnings ratio] plus balance sheet asset value if you put any value to the stuff they're working on in the metaverse," Rubin said. "That openness helps people to focus on the business's earning capacity, and if some value emerges from that other bucket, it's value-plus rather than value-minus."
Despite impressive sales growth, Facebook's stock remains inexpensive and "undervalued," according to Rubin, with a price-earnings ratio of 23.2 times, significantly below the S&P 500. Rubin anticipates that shares, which have risen 3% since the name change was announced, will continue to rise.
"I don't have enough data to study [the metaverse], but I'm not paying for it," Rubin explained. "And if they do come up with something, remember that this is a management team that built a trillion-dollar company out of a dorm room."
Outside of the metaverse, there is innovation.
The metaverse isn't only a potentially enticing disruptive technology for investors. Rubin also mentioned six stocks in the technology and health-care sectors where he sees potential. Each name is shown here, along with its ticker, market capitalization, P/E ratio, and Rubin's thesis.
By Flexi Team
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