While Apple (AAPL) continues to struggle to release their initial mixed reality device, Meta Platforms (NASDAQ:META) is set to release its latest VR device in October. The tech giant is now building solid momentum in a device lineup mostly ignored by the stock market. My investment thesis remains ultra bullish on the stock after the massive selloff due to ad market fears while the tech giant continues to claim a leading position in the Metaverse, especially with headsets.

Big Leap Forward

Meta already has a formidable position in AR/VR devices with the successful Quest 2 on the market. Now according to CEO Mark Zuckerberg on the Joe Rogan Experience podcast, the tech giant plans to release the Quest Pro (code name Project Cambria) in October.

The company has an aggressive project list over the next few years with The Information alluding to additional Quest 2 versions in 2023 and 2024 followed by a second version of Quest Pro in 2024. Meta has additional plans for AR glasses along with wrist-worn neural input devices.

In other words, Meta has huge plans to build hardware for the Metaverse with base and Pro VR devices, AR glasses and a watch similar to how Apple has different versions and form factors of the iPhone. The new Quest Pro devices are likely to cost at least $799 and possibly up to $1,500 for the kit which includes the headset, controllers, charging pad and cables, far in excess of the original $299 price, now $399, for the Quest 2.

The market will get the first indication of the demand for a premium VR headset considering Apple has delayed plans to release their device until 2023. Famous Apple analyst Ming-Chi Kuo already has suggested the device from the tech giant won’t ship until 2023 with an expected price target topping $1,000 and possibly approaching $2,000.

The move is interestingly providing Meta a solid lead on the Pro/premium headset category. Apple is definitely famous for waiting to release a seamless hardware product and dominating the competition, though the company has probably never faced a competitor spending billions to beat Apple to the market.

Per Zuckerberg, the new Meta Quest Pro device expected to release in October will have some impressive new features including new social options enabled by eye and facial tracking. The big question is whether these new features will attract enough consumers willing to pay up to $1,500 for the device.

According to IDC, Meta has sold nearly 15 million units of the Quest 2 headset. At a price tag of $299. the company would have generated $4.4 billion in sales for the device from Q4’20 through Q1’22.

As highlighted by UploadVR, several data points suggest this number could indeed be accurate. Meta only generated ~$3 billion in sales for the Reality Labs division from Q4’20 through Q4’21 followed by another $0.7 billion in Q1’22.

Clearly, the numbers don’t completely add up considering Meta offered a higher end version costing $399. As well, the company obtains revenues from Quest Apps with customer spending having topped $1 billion along with the Horizon Worlds. The company doesn’t provide a lot of details, but the data points would suggest the majority of the revenue comes from the headsets.

Meta will have a massive lead in the AR segment with another holiday season having a new device on the market along with the existing Quest 2. When combined with the expected release of the Quest 3 in 2023, the company will have the platform lineup to drive growth, especially considering Apple won’t have a base product on the market.

The price points of the new headset and the time to market lead over Apple could provide a big boost for Meta. The departure of the head of the Horizon platform is something worth watching, but the Metaverse VP remains at the company reducing any major risk of a key employee walking away.

Just A Bonus

As the above table highlights, any AR device related revenues are only a bonus to the business right now. The total Reality Labs unit only generates ~2% of all revenues for Meta.

The key to Quest Pro sales this holiday season is to cut the large losses in the business. Meta has a robust lineup in the segment, but the company needs to double and triple the December holiday quarter sales of $877 million in order to make a huge dent in the $3.3 billion quarterly loss of the unit.

Meta already has cut costs in Reality Labs to constrain what amounted to some rather irrational spending. The unit only lost $2.96 billion in Q1’22 followed by $2.8 billion in the last quarter despite revenues dipping to only $452 million, though up 50% YoY.

As discussed in prior research, Meta only trades at 14x the $11+ EPS target for 2023. Though, the EPS number has tons of potential boosts with the company not focused on optimizing for profits and Reels still far away from full monetization. Either way, the stock trades at the lowest forward multiple probably since going public while AR/VR device competitor trades at 25x forward EPS targets.

Also worth noting, Apple has over 3x the targets FY23 revenues reducing the impact from any success in this category. Meta is much more likely to see sales impact the business while Apple could sell $5 to $10 billion worth of AR devices next year and shareholders would hardly notice the benefit.

Takeaway

The key investor takeaway is that Meta is set up for a very important Quest Pro launch this October. A big delay by Apple could leave Meta with another holiday season without any competition.

The stock remains exceptionally cheap and further success with AR/VR devices isn’t factored into the current stock price, providing a major catalyst this holiday season.