an Apple (Nasdaq: AAPL) is the latest in a long list of tech companies joining the race for the metaverse. Apple is reportedly seeking to build an augmented reality headset that could be just that Unveiled this spring.
In this article, I will review the specifications of this product and the different ways Apple can stand to monetize this great opportunity.
I believe AR/VR, in conjunction with the metaverse, will become mainstream, and those who are investing now will benefit greatly.
Join Metaverse: The Reality Pro
Mark Zuckerberg has made no effort to hide his desire to invest in the Metaverse, even going so far as to rebrand his company and, most importantly, sinking billions of dollars into AR/VR. Microsoft, Inc (MSFT) has partnered with Meta Platforms (META) in many areas AR / VR and also acquired Activision Blizzard (ATVI), pending The approval of the regulatory authorities.
Now, Apple has also announced its own intentions to enter the lucrative AR/VR field, with the release of its own headset, which will likely be unveiled this spring. From what we know, Apple is looking to launch a high-end headset that includes VR and AR functionality.
According to Bloomberg, the “Reality Pro” can be priced at $3,000, well above similar products like Oculus, which sell for around $1,500. Early reports also claim that the Apple headset may come with a battery pack attached to the hip and use the Mac’s powerful M2 processors. They may also have motorized lenses that can adjust to each individual’s eyes.
It is important to note that Apple has not confirmed or denied any of this yet. However, given the great opportunity the metaverse offers, I’m not surprised by the move.
Gain exposure to Metaverse
The Metaverse has caused undue amounts of suspicion in the past year. After the hype around the metaverse, VR, and crypto in 2021, we are now at a point where most investors believe this is not a profitable endeavor. Zuckerberg, for example, has received heavy criticism for going this route.
But while digital real estate and virtual vacations may still be a long way off, the idea is that we will begin to interact differently with the world around us, and many of our digital experiences will take on a new and improved form.
According to Technavio, the AR/VR industry will grow at a compound annual growth rate of 46% from here to 2025, generating a total market size of $165 billion. Also keep in mind that Meta sold over $15 million Oculus 2 units and that the Oculus app was one of the most downloaded apps last year.
With the strong brand loyalty that Apple has built over the years, there is no doubt in my mind that if the company can build a product that can rival the Oculus 2, it will be able to sell over 15 million units.
For Apple, which mainly sells hardware, producing an AR/VR headset seems like a natural next step. I think it’s an improvement on the iPhone. With that said, software is also an important part of the AR/VR equation, which is probably why Apple is also developing its augmented reality operating system.
As Apple jumped into the ring, interest in the Metaverse resurfaced, and the excitement was palpable. Metaverse-related cryptocurrencies such as Decetraland (MANA-USD) and Sandbox (SAND-USD) are up 80% and 40% in days. The contrarian narrative could be a major bullish force for these digital assets if the cryptocurrency market can see another bullish run.
At today’s prices, Apple has a compelling valuation, even without taking into account the metaverse’s potential.
Using a simple 10-year DCF model and using analyst estimates, we can see that Apple may have some upside. At the moment, Apple is set to grow at a moderate rate. After all, it has already penetrated deeply into the mobile phone market. But how much can Apple add to its growth with the AR/VR market?
Last year, Meta managed to sell 15 million units of its VR headset. If Apple can repeat this in the next two years, the company will add $30 billion to its top line. This is assuming an average retail price of $2,000.
But this is just the tip of the iceberg. This technology could one day be common in other devices such as laptops, and Apple could also make a lot of the royalties it receives from AR/VR related software, like it does now with the Apple Store.
It is very difficult to define. By 2030, some projections predict that the virtual reality/augmented reality market will reach a size of $451 billion. Even a small fraction of that would be a significant addition to Apple’s revenue.
Of course, there are risks we have to take into account when it comes to a somewhat new and unproven business like AR/VR.
For starters, Apple is late to the game when compared to Meta platforms, which already have AR/VR headsets for sale and have been investing in the metaverse for years. Still, given Apple’s hardware expertise and strong brand loyalty, the company could gain an advantage in the long run.
From a macro perspective, we have to contend that this is probably not the best time to invest money in a non-essential high-end product. We are still in a tightening monetary cycle, and the US will likely enter a recession in 2023.
In conclusion, I personally see Apple entering the Metaverse as a huge win for the company. AR/VR headsets are a natural extension of what we use today, and I think they will become a popular household item once the technology and price get to a certain level. With that said, I’m still waiting to buy Apple stock at a later stage once the macro looks better.
Editor’s note: This article covers one or more smaller cap stocks. Please be aware of the risks associated with these stocks.