When Mark Zuckerberg unveiled Orion at the Meta AI and metaverse event last month, the billionaire tech founder compared the augmented reality smart glasses to a "time machine."
"These glasses exist," he said on stage at the Facebook parent company's Menlo Park, Calif., headquarters. "They are awesome and they are a glimpse of a future that I think is going to be pretty exciting."
It has been nearly three years since Zuckerberg famously changed the company's name from Facebook to Meta. The tech giant, to the chagrin of some Meta stock investors, has spent tens of billions of dollars in hopes of bringing a metaverse powered by augmented and virtual reality mainstream. For all Zuckerberg's enthusiasm, many investors view the metaverse more as a money pit than a time machine.
Zuckerberg offered up the Orion prototype as evidence the company is on track to build what he sees as the next computing platform – one that could make the tech powerhouse less dependent on the mobile platforms of rivals Apple and Google-parent Alphabet.
"Zuckerberg is thinking a lot about vertical integration for the next-generation platforms and ensuring that another Big Tech company can't disrupt his business," New Street Research analyst Dan Salmon told IBD. "I think that's clearly really important to him."
Mark Zuckerberg's Platform Vision
Meta is already one of the biggest, most powerful companies in the world. Its Family of Apps, which includes Facebook, Instagram, WhatsApp and Threads, attracts more than 3 billion regular users.
That reach has enabled Meta to dominate the social media advertising market, and has made Meta stock a Wall Street favorite. In terms of valuation, only Apple, Nvidia, Microsoft, Amazon and Google boast larger market caps than Meta.
After a deep slump in 2022, Meta stock has roared back with a nearly 400% gain since the start of 2023.
Yet Meta faces a hurdle: It relies heavily on other tech giants to reach its main customers. The rise of mobile phones in the past decade has meant the main way people interact with its products is through app stores and operating systems from Google and Apple.
This dependence on rivals' platforms has caused problems at times for Meta.
In 2021, Apple made it easier for iPhone users to prevent apps from tracking their actions. The move made it harder for Facebook and Instagram to track the effectiveness of ad campaigns. The changes took a $10 billion bite out of Meta's revenue for 2022 alone, contributing to Meta stock's deep slide that year.
Why Meta Is Spending Big On The Metaverse
Zuckerberg often points to the company's reliance on other platforms when asked about the company's big spending on the metaverse.
Meta's metaverse-focused Reality Labs division generated an $8.3 billion operating loss in the first half of this year against just $793 million in sales. It has generated more than $50 billion in losses since 2019.
But Zuckerberg says there can be big benefits if Meta has greater control over the computing platforms that power its apps.
"When they tell us we can't ship certain products, people use the things less or like them less, and it's hard to exactly estimate it, but I think we might be twice as profitable if we own the platform or something," Zuckerberg said in a recent live interview with the hosts of the business strategy podcast Acquired.
Meta Stock: The Orion Augmented-Reality Glasses
In Meta's rivalry with Apple, Zuckerberg has become a high-profile proponent of open source software. The company's powerful Llama large language models are published freely for AI developers. The operating system behind its Meta Quest headsets is available for third-party hardware makers to build on.
The metaverse has represented a chance for Zuckerberg to build a technology platform "more open, more accessible" than the current mobile version, as he put it at Meta Connect. Still, the specifics of the metaverse have been fuzzy since Facebook became Meta in 2021. Big virtual reality headsets like Meta's Quest 3 haven't gained much traction with consumers.
But Zuckerberg said rolling out Orion takes Meta a step closer to creating "the next major computing platform."
Representing a decade of research and development, the glasses project virtual objects into their wearer's field of view. They can show video calls, identify objects through AI, play games and take photos. The glasses can be controlled through voice or a "neural interface" wristband that interprets small hand motions.
"This is the physical world with holograms overlaid on it," Zuckerberg explained at Connect. "So if someone messages you, you will see that. Instead of having to pull out your phone, there will just be a little hologram. With a few subtle gestures, you can reply without getting pulled away from the moment."
That could offer a more streamlined and (relatively speaking) stylish way to bring mixed reality to life.
"Meta pretty convincingly demonstrated a future 3D computing platform that solves for the many headwinds that virtual reality and VR headsets won't overcome," Forrester research director Mike Proulx wrote in a blog post following the event.
Can Meta 'Disintermediate' Apple?
New Street's Salmon wrote in a client note after the Connect event that there is a long-term rationale for Meta with the metaverse: to "disintermediate" Apple and Google.
"Meta's push into the next-gen consumer computing platforms is anchored in vertical integration of hardware, operating system, and applications," Salmon wrote to clients. "Just like Apple's iPhone/iOS/App Store or Google's Pixel/Android/Play Store approach to the last major computing platform, mobile."
Meta's "vision for the metaverse may still be developing," Salmon argued. But the tech giant "continues to develop an ecosystem where it will fundamentally have greater control over its relationships with users, and thus greater control of its long-term business strategy."
Meta's Orion Is A Prototype
Orion glasses are still just a prototype for developers. Meta needs to deal with a key problem: pricing. Orion glasses cost nearly $10,000 per unit to build, according to The Verge. Zuckerberg said he'd like them smaller and lighter.
Privacy is another hurdle. And so are behavioral issues around the use of computers that can see and stream everything.
"For the adoption of smart glasses to make sense, especially in the way Mark Zuckerberg expects them to be adopted, privacy concerns need to be addressed and security and comfort of use needs to be the priority," Matilda Beinat, an analyst with ABI Research, told IBD.
Meta will likely draw lessons from Google's experience.
Google Glass wearers were dubbed "Glassholes" when Alphabet offered an early version of smart glasses a decade ago. Already, students at Harvard ran an experiment showing how they say the camera on Meta's Ray-Ban glasses can be paired with facial recognition databases to almost instantly identify people.
How Meta's Ray-Bans Became A Surprise Hit
Meta does have something more immediate to celebrate on the augmented reality front: Its second-generation Ray-Ban smart glasses have proved a surprise hit. The product has sold an estimated 700,000 total units in its first year and more than doubled shipments from the first and second quarters of 2024, according to the Wall Street Journal.
Meta unveiled updates to the Ray-Ban smart glasses at Connect. These included AI-powered live language translation and reminders that let you ask Meta AI to remember things you have seen.
The smart glasses market is still tiny compared to the billions of users on Apple and Android phone systems. But it is growing.
According to IDC, roughly 1.8 million smart glasses will sell worldwide this year, up 73%. That market is expected to grow to 2.3 million by 2028, representing 7.6% compound annual growth, the research firm said.
Meta's Ray-Ban glasses have made it an early leader in the market.
"In my view, what Meta did right was promoting the glasses through Instagram and working with creators to show off the capabilities of the glasses," Jitesh Ubrani, a research manager at IDC, said in an email. "Beyond that, they also listened to user feedback by slimming down the design, (and) improving audio and video."
Beinat, with ABI Research, says the built-in Meta AI assistant gives the glasses a broader range of uses than prior attempts at smart glasses, such as Google Glass. Meta's Ray-Ban can help translate menus and street signs, not to mention let users take photos without pulling their phones out.
"Those (are the) types of small uses that can help you in your everyday life," Beinat said.
Meta Stock: Ads In The Metaverse?
Meta's Reality Labs remains controversial. One big question is what it will mean for Meta's central advertising business, the source of 98% of its revenue. Meta is likely viewing its hardware push as a way to boost that business, William Blair analyst Ralph Schackart suggested.
"The thing to keep in mind is that Meta is an ad business," he told IBD. "So the way I see the metaverse is as just a different device, or a new platform, for them to expand their auction capabilities and serve more ads into new devices."
To that point, Zuckerberg has previously told analysts that he expects Meta will have a "large business component" from Reality Labs products. But, as he told analysts on a July 2023 call, he also sees benefits for Meta's apps if they operate more often on a computing platform that Meta created or shaped.
"That would be recognized not by device sales or some new experience that we're building in Reality Labs," Zuckerberg said. "You would basically see that accrue through more efficient monetization of the apps and experiences that we're building in other places."
Race For Smart Glasses: Will Apple Follow Meta?
Of course, Meta faces stiff competition in smart glasses. The biggest one is Apple.
Apple's $3,500 virtual reality headset launched earlier this year. Apple Chief Executive Tim Cook is a believer in what he calls "spatial computing."
Martin Yang, an Oppenheimer analyst covering Apple, said in a recent client note that Orion doesn't look like a "Vision Pro killer" just yet given its cost to produce.
Still, Bloomberg reported in February that Apple has at least explored the idea of augmented reality smart glasses.
Then there's Google. The company had a high-profile miss a decade ago with the Google Glass project. But Google reportedly has been exploring new versions of the technology.
Meta's social media rival Snap also released its own AR glasses, which are now available for use by developers.
Current Meta Stock Analysis
Excitement about Orion and the company's AI announcements at Connect helped boost Meta stock. On a technical basis, Meta shares are up from a Sept. 19 breakout from a 542.81 consolidation pattern buy point with no defensive sell signal, so far, according to MarketSurge. The stock, which is trading near 576, is out of the 5% buy range from the entry.
Meta stock appears to be testing its 21-day exponential moving average. Its Relative Strength line recently hit new highs, a sign of continuing bullishness.
Meta stock is currently on the IBD Leaderboard list of timely growth stocks.
Overall, Meta has gained nearly 65% this year and remains a consensus buy among analysts. But the focus for investors remains on Meta's digital advertising efforts and its AI push.
"The investment community's largest concern(s) with the Reality Labs initiatives are the losses that they are generating," Salmon of New Street Research said.
Analysts expect Reality Labs' losses to widen for at least the next three years, according to the FactSet consensus. Meta will eventually need to show a real return on the Reality Labs spending.
But for now, Zuckerberg is preaching patience.
"There is the thing about controlling our own destiny," Zuckerberg said in the Acquired interview. "It's strategically valuable."
