With Facebook recently changing its parent company name to “Meta” rest assured you’re going to be hearing a lot more about the metaverse from now on.
What is the metaverse?
I think the easiest way to visualise it is if you think of the current internet experience as 2D and screen based. Then, the metaverse as the next iteration of the internet, which will be 3D and fully immersive.
If you think people today spend too much time staring into their mobile phones, then you’re in for a shock. Soon enough we will be effectively living in them. Virtual reality (VR) and augmented reality (AR) headsets will be to the metaverse what the iPhone was to the web.
I see it as being at a similar stage to the internet, domains and websites in the early 90’s. It’s starting to take shape but it’s a long way away from being functional for mainstream use. A lot is going to happen in the next 5-10 years that will take it mainstream. All the major tech companies are already heavily investing in building the metaverse. Once it starts to scale, the network effect will do the rest.
Why does it matter?
Because it is the future of the world. It doesn’t just change it. The metaverse brings together many of the technological trends emerging today including machine learning, AI, cryptocurrency, NTFs and virtual and augmented reality to create completely new worlds and experiences. The most obvious area to start is computer games but it will encompass all aspect of our lives before long, from music and fitness to the future of work and education.
Today’s most popular gaming companies understand the potential of the metaverse and are already providing the early platforms for these immersive experiences. The companies that run Minecraft, Fortnite and Roblox are at the cutting edge. Kids don’t just play these games they spend their time there socialising and creating. They experience these worlds with their friends, both from school and those they meet in the metaverse.
But gaming is just the start. The virtual economy will be massive and paying for virtual goods and services will be standard. The music industry is already starting down this path with an exclusive concert on Fortnite by Travis Scott attracting 27 million participants last year. The fitness industry through the gamification of workouts and exercise is next.
In the metaverse you will be able to travel to anywhere in the world and experience travel adventures from the safety and convenience of our own home. You’ll be able to put on a VR headset and spend a Thursday evening in a gondola sightseeing in Venice or meeting up with friends on a Friday night to attend the live Rolling Stones concert.
In the US the National Basketball Association (NBA) partnering with Facebook already provides fans the ability to watch selected games in fully immersive virtual reality from a range of vantage points at the game, including courtside seats. Imagine being able to attend any event in the world at any time from your own home and it all feels like you are there in person. This is no longer science fiction.
How to invest in it?
It wasn’t that long ago companies repositioned themselves from web based to be ‘mobile first’. Well over the next 5-10 years companies are going to be moving to ‘metaverse first’. Right now, there are several companies at the cutting edge of creating the foundations of the metaverse. No doubt there are going to be many more in the years ahead. Many are going to lose so it’s important to be strategic here.
Facebook through their Reality Labs business are very well placed to lead the way in the hardware and software of the future. They plan to spend at least US$10b this year alone in this division. However, Microsoft is equally well placed and is taking a more pragmatic, if less visionary, path to providing the tools for the metaverse through their existing suite of products such as Microsoft Mesh and Teams.
I see Facebook and Microsoft as market leaders here. To me, they are the lowest risk way to gain exposure to one of the most exciting areas of growth we will ever see. They are both great businesses, very profitable, yet are still both growing rapidly each year and have excellent long term growth potential too. I see these stocks providing a free hit to the future upside of the metaverse.
But perhaps my favourite company in this field is Roblox. Roblox reports that their 47.3 million average daily active users spend approx. 2-3 hours per day on Roblox. Talk to anyone with kids under 14 and chances are they are already very familiar with their kids spending real money to buy Roblox digital currency, Robux. The engagement metrics and revenues are amazing. This is a company consistently growing at over 30% pa and in my opinion is poised to be one of the next tech giants in the era of the metaverse.
Facebook, Microsoft and Roblox are all outstanding companies that we own in many of our growth-oriented client portfolios, and I own personally. Subject to price, I will continue to add to these holdings over time.
This information is of a general nature only and may not be relevant to your particular circumstances. The circumstances of each investor are different, and you should seek advice from an investment adviser who can consider if the strategies and products are right for you. Historical performance is often not a reliable indicator of future performance. You should not rely solely on historical performance to make investment decisions.