Technology surely is a wonder, isn't it? Think about it: in the last 20 years or so, a plethora of technological advances mean our lives are now more integrated with software and code than ever.
More than 40% of the world's population now has access to the internet and more than 90% of the world's data was generated within just the past 2 years. (Although most of this comes in the form of digital media – photos, social media, customer data, etc.)
Much of the recent growth stems from infrastructure upgrades and also technological advances, including a vast improvement in internet speeds.
The chart above shows how internet speeds have increased in the last 10-12 years across all major nations.
It seems this has helped drive people's integration with the technological stratosphere — and not the other way around.
Enter the metaverse. It's a term you've probably heard thrown around investor circles lately, especially with the rise in speculative digital assets such as cryptocurrencies. Not to mention, a huge tech company with a similar name – but it's a relatively new term nonetheless.
Long has been our fascination with the idea of a 'digital reality', a technological utopia of sorts. Think of the success of The Matrix franchise — and we still quote lines from Orwell's 1984.
But, as with anything new, there comes an element of fear and angst. The metaverse isn't immune. It hasn't exactly got investors running for the hills. (It hasn't quite attained "weapons of financial mass destruction" status, as Warren Buffet once labelled derivatives in one of his annual reports), but there are reservations.
However, the metaverse is an intriguing new aspect of reality that looks set to stick around for a while.
So what is it? Will there be one big metaverse or a multitude, as some suggest? There are many questions still to be answered, even by the experts.
In this article, we'll deconstruct the metaverse and help you, as an investor, understand how to potentially make a bold entrance. Or a small one, whatever suits. Either way, it seems imperative that we know a bit more about the topic. Strap in, let's take a look.
What is the metaverse?
The word 'metaverse' was apparently first coined in the 1992 sci-fi novel Snow Crash where author Neal Stephenson used the term to describe a 3D virtual world.
According to a definition on Bloomberg Intelligence, today's version of the metaverse is a digital reality that combines numerous aspects of digital media, enabling users to interact virtually.
This includes augmented reality (AR), online gaming, virtual reality (VR), cryptocurrencies, and even social media.
Another definition has it a new phase of "interconnected virtual experiences".
Perhaps the boldest claim to date, however, is that it's touted as the next evolution of the internet — the internet 2.0.
Although it sounds similar to VR and AR, the metaverse is actually quite different. It aims to replicate a real-world experience for users, whereas VR is entirely fictional or story-based.
That means it is also different from the internet in that it uses real-time 3D visualisation software to blend the physical and virtual worlds.
Picture an online world where everyday activities such as grocery shopping, buying and selling of real estate, business meetings, and even education include all of the sensory elements of reality – only they occur in these '3D virtual spaces', that is, in the metaverse.
Basically, the metaverse is the real world transposed online into a digital version. Except it incorporates additional capabilities that we, as mere mortal humans, can't perform in real life.
On that basis, yes, one needs to 'enter' the metaverse which, at this point in time, is achieved through computers and/or other tech devices.
It may sound crazy to think we would enter a digital world to do things we already do in real life, right? Well, it's happening — and both companies and investors alike are making a splash in the digital universe as well.
Perhaps the most popular metaverse move of late has been the former Facebook's pivot into the new online world. The company even changed its name to Meta Platforms Inc (NASDAQ: FB) and shifted its focus entirely onto the metaverse.
CEO Mark Zuckerberg wrote in his founder's address, in 2021, that in the metaverse, we'll be able to do just about anything imaginable. Literally anything.
For instance, Zuckerberg claimed we'll be able to "teleport instantly as a hologram to be at the office without a commute, at a concert with friends, or in your parent's living room to catch up".
We'll also have the opportunity to "create new experiences that don't really fit how we think about computers or phones today", he wrote.
In fact, Meta even goes so far to say that by "creating a sense of virtual presence, interacting online can become much closer to the experience of interacting in person".
How big is the metaverse? How big will it grow?
Interest is piquing from the public on the topic as well. Data from google trends shows that searches on the term 'metaverse' spiked in September last year and have remained elevated since. No doubt, much of this activity came from Meta (nee Facebook)'s name change around the same time.
Nevertheless, data compiled by digital marketing company Mrs Digital finds people are still quite uncertain about the metaverse based on specific search terms. This suggests the concept is still in its infancy and that adoption has been slow to date.
However, data compiled by Statista, PWC, Bloomberg Intelligence, and venture capital company Epyllion, claim the metaverse could reach a value of $800 billion by 2024/25, growing at an average of 13% per year until then.
Given the rise of gaming software and social media advertising, the market could triple that size in the not-too-distant future. Epyllion even suggests "this is a $10–$30 trillion opportunity that will manifest in a decade or decade and a half".
More analysis from Bloomberg suggests that mentions of the word 'metaverse' have increased more than 4 times in third-quarter US earnings transcripts.
In a note from December, US investment bank Jefferies also believes it to be a multi-trillion opportunity, stating it will create the biggest disruption to human life ever seen.
"A single metaverse could be more than a decade away, but as it evolves, it has the potential to disrupt almost everything in human life," its analysts wrote.
Jefferies also notes that our younger generations will likely spearhead the metaverse's rise, specifically those aged between 9 and 24, otherwise known as Generation Z.
What will the metaverse involve?
Right now the biggest revenue opportunity in the metaverse exists for game and software developers, live events, user-generated content, social ads, social networks, and those using VR/AR.
The assumption is that enormous opportunities will arise in these markets within the metaverse, especially for entities that can blend their physical and virtual worlds.
According to analysis from Bloomberg Intelligence, the biggest opportunities sit within gaming and software sales as well as the development of new gaming hardware.
It is estimated this subsector of the market could reach $412 billion in value by FY24. It was already valued at $275 billion in 2020. Within this figure, roughly 70% of earnings come from software and services sales.
Game makers are generating sales via play-to-collect and play-to-earn games that use blockchain technology and cryptocurrencies like Bitcoin and Dogecoin.
These features could be incredibly profitable and lead to innovation, according to technology analyst Matthew Kanterman of Bloomberg.
Not only that, for live events such as concerts and sports, the metaverse provides an opportunity to host these on a digital platform, showing them in a 3D virtual world. This also represents additional opportunities for game makers with some already holding concerts inside their games, according to Kanterman.
According to data obtained from Bloomberg, Statista and PWC, the revenue opportunity in films, sports, and live music could exceed $200 billion in the next 3 years.
How to invest in the metaverse?
To track the sector's performance, there is the Ball Metaverse Index. It's managed by an expert council and maps companies into 7 categories that are weighted towards the metaverse.
The index has a market cap of $87 trillion and contains mostly media and tech-weighted companies. It has underperformed the benchmark so far this year, alongside global tech indices.
According to research compiled by Bloomberg, companies exposed to the metaverse in the Ball Index have outperformed the MSCI ACWI Index of Developed and Emerging markets since 2018.
The same list of companies also gained around 6% during the previous quarter on average, according to this research. Who are these companies? Here's a list of the top 10 main players by market capitalisation in the table below, from Bloomberg:
| Name | Country of Domicile |
| Apple Inc | United States |
| Microsoft Corp | United States |
| Meta Platforms Inc | United States |
| NVIDIA Corp | United States |
| Tencent Holdings Ltd | China |
| Walt Disney Co/The | United States |
| Sea Ltd | Singapore |
| Sony Group Corp | Japan |
| Snap Inc | United States |
| NetEase Inc | China |
The breakdown is quite concentrated by industry. It appears that around 60% of current revenue activity in the metaverse is made up by the media, followed by tech and semiconductors at 25%. Financial services and consumer discretionary also account for 3% each.
By region, the lion's share of metaverse activity is focused on the US with Asia and Europe making up the remainder, Bloomberg says.
It seems those investors wanting exposure to the metaverse might want to pay attention to these large-cap stocks that are already involved with the space.
However, a number of metaverse-specific ETFs have surfaced in recent months, giving investors diversified exposure to the sector.
The Roundhill Ball Metaverse ETF (NYSEAMERICAN: METV) launched back in June and aims to track the performance of the Ball Metaverse Index.
It has struggled recently amid the tech selloff in 2022 and was trading at US$12.72 at last check.
The Fount Metaverse ETF (NYSEARCA: MTVR) is another US incorporated ETF that tracks the performance of the Fount Metavese Index. It has shown similar returns of late and is now trading at US$21.62.
The Subversive Metaverse ETF (CBOE: PUNK) also provides investors exposure to short the metaverse, by performing a daily short of 40 shares on Meta/Facebook's share price.
It was formed within the last few months. With Meta erasing over $200 billion in market cap in just a few hours last week on its earnings miss, we can all guess how PUNK must have performed lately. It is shown on the chart below in mint-green, towards the right-hand side.
In fact, there are now 282 listed funds concentrated on the metaverse, according to data compiled from Bloomberg Intelligence.
What's next?
By all accounts, the metaverse is set to see a period of increased adoption over the next few years. It appears that many new entrants will make their presence felt and innovators will find ways to capitalise on the newly-formed free market.
For us, as investors, there's the opportunity to enter as a company-specific play or via the numerous ETFs that have launched lately.
However, it's early days and there are many uncertainties, a fact widely acknowledged among sophisticated investors.
Plus, who knows if it will be even be accepted en masse? Tesla Inc (NASDAQ: TSLA) founder Elon Musk was recently critical of the metaverse, noting that he'd prefer not to have a set of VR goggles "strapped to [his] head all of the time".
Jefferies reckons it's the younger generation that will drive growth in the space. Yet a poll conducted by market research firm The Harris Poll found only around 40% of generation Zs see the metaverse as becoming part of our lives in the next decade.
But the research also found around 70% of generation Zs and millennials would be interested in knowing more about or interacting with the metaverse.
The question is whether both individuals and investors are willing to part with their hard-earned money and place it in the realms of the digital world.
Facebook's investment into the space adds a layer of credibility. However, investor interest has so far remained relatively sparse, even with the new ETFs.
Of course, time will tell where the direction of the metaverse takes us and there's certainly nothing wrong with sitting on the sidelines and watching it all unfold in the meantime.
