Goldman likes Meta's moves in the metaverse — and gives the stock serious upside

Published Thu, Apr 21 20228:47 PM EDT

Lucy Handley @in/lucy-handley-b2b0a61a/@lucyhandley

Goldman Sachs says Meta — formerly Facebook — is one of two "main emerging players" in the augmented and virtual reality space. It is buy-rated on the stock, which it says has serious potential upside. "The two main emerging players in VR/AR platforms are Meta and Apple ," Goldman analysts said in a 19 April research note. "Meta is already shipping products and has provided very detailed indications of its aspirations in this area while Apple has not disclosed its plans." They noted that Meta's Quest Pro VR headset is set to ship in the fall, and said they like its "attractive hardware pricing and compelling experiences." Virtual reality (VR) uses headsets to create a fictional, screen-based reality, while augmented reality (AR) overlays a real-world scene with additional information. Both allow people to access a virtual world known as the metaverse – a term that became part of the mainstream vernacular when Facebook hired a product team to work on the project last year, before changing its company name to Meta . Goldman has a 12-month price target of $355 on Meta stock, which closed at around $200 on April 20, representing a potential upside of just over 77% Virtual reality Goldman prefers virtual reality to augmented reality right now, given that usable products in this space already exist. Its analysts, led by Rod Hall, said that Apple is "likely aiming at an extension to its already powerful platform and Meta looking to build a base of users through attractive hardware pricing and compelling experiences." Goldman estimates that Meta has sold around $2.6 billion of its Oculus VR hardware and accessories since the fourth quarter of 2020 and noted that the firm has announced it will invest in hardware, content creators and data centers. Its Oculus Quest — set to be renamed Meta Quest — retails for $299. Meta is due to report first-quarter earnings on April 27. Last year, the company announced that its hardware division, Facebook Reality Labs, was being split off into a separate division. In the fourth quarter, its Reality Labs segment made $877 million in revenue , with an operating loss of $3.3 billion. Earlier this month, Meta said it would take a cut of up to 47.5% on the sale of digital assets within Horizon Worlds, its virtual reality platform. Overall, Goldman expects 19.4 million virtual reality headsets to be sold worldwide next year, ahead of the 18.9 million units forecast by the International Data Corporation (IDC). The bank expects the figure to reach 34 million by 2025. Read more Looking for the next earnings season blowups after the Netflix disaster These stocks look attractive in a beaten-down tech sector, analysts say ‘We need batteries,’ says Morgan Stanley. Here are stocks to ride the capital spending boom But the analysts also noted that VR headsets are yet to be broadly accepted due to users finding them heavy and uncomfortable, with around a third of people experiencing motion sickness. "However, we believe that VR could become an important element of remote working if comfort and other issues are solved," Goldman noted. The bank said augmented reality tech is "awaiting core science breakthroughs" and is five or more years away, with its analysts forecasting 1 million units to be sold in 2023. Apple has not publicly confirmed work on a VR headset but its Technology Development Team is reportedly working on the hardware, with a headset potentially costing more than $1,000 . Goldman has a price target of $161 on Apple, which closed at around $167 on Apr. 20, representing a potential downside of 3.7%. The bank has a neutral rating on the stock. — CNBC's Kif Leswing, Sam Shead and Lauren Feiner contributed to this report.

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