Investors are turning their attention to stocks that may reap the greatest profits as the metaverse matures into what could be a $30 trillion opportunity in the next decade. Snapchat Inc’s (SNAP -4.08%), which is responsible for making social media cameras, has an extremely inventive approach on the metaverse that might propel it to the front of the pack.

The firm’s financial results for the first quarter of 2022 were released last week, and while earnings per share declined, it made progress in its augmented reality (AR) projects. Here’s why that’s another incentive to buy shares.

The path to profits

In the fourth quarter of 2021, Snap posted its first-ever quarterly GAAP profit of $0.01 per share. It capped a string of good results as the business successfully navigated recent privacy changes imposed by smartphone maker Apple, which restricted Snap’s ability to target consumers for advertising. It’s one of the few occasions when Snap has outperformed Meta Platforms, its main competitor.

Unfortunately, the firm’s momentum on profitability couldn’t be maintained, with quarterly earnings declining into the red again in Q1 2021. Although Snap grew sales by 38% year over year, it decreased 18% sequentially. Furthermore, during Q1 2022, it invested 60% more in marketing and spent 52% more on employee costs than it did in Q1 2021, which impacted the bottom line.

However, there is some brightness in the wider picture. Analysts anticipate Snap will generate $0.53 per share in earnings by the end of 2022, which means it may still achieve a highly lucrative year.

Augmented reality is driving engagement

Snapchat’s primary source of income is its daily active users (DAUs). Businesses that want to reach Snapchat’s audience are driven to spend more money on advertising as the user base grows. During the epidemic, like other social media sites, the company experienced a rise in active users owing to restrictions and work-from-home arrangements.

Even as COVID-19 limitations have decreased, user growth has remained strong.

Snap’s heavy spending in AR tools, which 250 million Snapchat users use every day in Q1 2022 – that’s 75% of the user base – may be to blame. It also resulted in an increase in engagement, with Snap’s Lenses tool allowing for more than double year-over-year AR usage.

The metaverse may be a gateway for Snap, at the very least in terms of how it sees it. While smartphones are now the most popular way to access AR experiences, Snap has designed wearable glasses called Spectacles that broadcast AR experiences into the user’s eyesight to improve everyday life.

It’s the perfect combination of the physical and virtual realms, and while traditional virtual reality headsets fully envelop the user, Spectacles may be worn anywhere, increasing usage.

Author: Steven Sinclaire

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