Is it time to invest in the metaverse?

This immersive third generation of the internet could provide fascinating and exciting opportunities for investors – and not just in technology companies. All kinds of companies are already adopting technology platforms and content. So the question is… is it time to invest in the metaverse? Here’s our investment management experts’ view.

Zuckerberg’s metaverse

Mark Zuckerberg is the emperor of a digital country with 2.8 billion citizens across its four regions – Facebook, Messenger, WhatsApp and Instagram. He is a dictator who controls most of the voting rights. However, he is a benign one as he lets us live there for free. Although his empire is often called a social media company, 99% of Zuckerberg's revenue comes from targeted digital ads – he simply wants all our data in order to target these ads more precisely.

But all is not well – the population has started to fall as the younger citizens move to more exciting destinations. TikTok, a Chinese platform which allows users to share short videos, has seen a surge in new users in the past couple of years and now has over one billion users spending an average 14 hours a month there. ‘Massive Multi-player’ games such as Call of Duty and Roblox have also benefitted from COVID-19 lockdowns as people engage with each other in virtual worlds. 

News of the fall in engagement – and Apple’s crackdown on data collection on their platforms – caused the Facebook share price to halve from September 2021 to March 2022 and has hastened Facebook’s re-invention of itself.

A metabolic shift to the metaverse

Having been founded with the aim to ‘Move fast and break things’ and the noble goal of ‘Connecting the world’, the company is now driven by the slogans ‘Build awesome things’ and ‘Live in the future’. To emphasise this, it has changed its name to Meta Platforms Inc., and is spending over US$10bn¹ a year to build its vision of the future (approximately 9% of its total US$117bn total revenue in 2021) – a seismic shift to the metaverse.

The metaverse, a portmanteau word meaning ‘beyond the universe’, is a vision for the future direction of the internet. It is a virtual world where you can connect with people via your avatar in a digital environment akin to the real world. It represents the immersive third iteration of the internet following Web 1.0 (often defined as browsing centrally created content) and Web 2.0 (user-generated content).

In this vision of virtual socialising and virtual meeting places, Meta is hoping to tread on the toes of Microsoft. Microsoft has a similar vision for immersive workspaces in the future office and should also benefit from the continued increase in demands for cloud computing and storage which result from this.

However, Microsoft's Xbox gaming franchise gives it a further route into our homes. It recently purchased Activision Blizzard for US$69bn² (the biggest takeover of financial year 2021-22 globally) to capture the hearts, minds, and wallets of consumers through the acquisition of some of the world’s most famous online gaming franchises.

Preparing for new horizons

This new frontier is likely to expand well beyond these environments, and a broad swathe of businesses are preparing. Success will partly be to do with technology and partly to do with the experience consumers will enjoy.

Retailers from Amazon to Tesco envisage us browsing virtual shopping aisles. Your avatar will need clothing and accessories, so Gucci and Louis Vuitton have announced plans to sell ‘non-fungible tokens’ or NFTs (unique digital assets which only you can own) to allow you to dress your digital self in their latest fashions and handbags.

Similarly, you may need art for the walls of your virtual house and office, so artists are selling NFTs of their work; Bloomberg Intelligence reports that there were US$54bn in sales of virtual goods in 2021 alone. And this virtual economy will need a way of conducting transactions, likely to lead to further growth in digital currencies and other decentralised technologies.

Education and healthcare are other possible applications which business and governments are keen to explore, as well as the art world – from gallery tours to immersive pop concerts.

Living in a virtual world

Technology consultant Gartner now believes 25% of us will spend at least an hour a day in these virtual environments. Given that we already spend an average of almost four hours a day interacting with our phones, this might be a conservative estimate.

For most of the companies mentioned, these are relatively small investments in a possible future. Microsoft’s US$69bn purchase of Activision Blizzard is the largest and most visible investment in the metaverse aside from Meta Platforms’. Yet Microsoft is now so big that this represents a mere 4% of the company’s current value, significantly lower than Meta’s annual investment of 9% of its total revenue in the metaverse².

On the dark side

We should not overlook potential problems for society in this digital land grab. Recent whistle-blowers have revealed the damage to teenagers’ mental health caused by Instagram, while the World Health Organisation now recognises video game addiction as an illness.

As often happens, governments, regulators and law enforcement are far behind the emergence of new threats and opportunities that these new worlds offer. At the extreme, there is also the science fiction-style threat explored in the Matrix films – that artificial intelligence becomes so powerful that we can no longer tell our virtual world apart from reality. And we may not even care.

So, is it time to invest in the metaverse?

For now, the attitude of many businesses is perhaps summed up best by the boss of Gucci, French billionaire Francois-Henri Pinault: "We are in an extremely early stage of what could happen. Nothing is certain; it might fizzle out. But the philosophy of the group, rather than wait and see, is to test and learn."

This immersive third generation of the internet and the many companies already adopting technology platforms and content may well bring new and exciting opportunities for investors.

However, the first two iterations saw huge disruption to incumbent business models and the emergence of giant new businesses which now dominate our lives. Rest assured, Canaccord Genuity Wealth Management  will continue to research and monitor developments to try to take advantage of the potential opportunities and avoid the possible disturbances.

If you would like to look into the possibilities of investing in the metaverse, please request a complimentary consultation with an investment manager, who will be happy to discuss this with you.

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Investment involves risk. The value of investments and the income from them can go down as well as up and you may not get back the amount originally invested. Past performance is not a reliable indicator of future performance.

The information provided is not to be treated as specific advice. It has no regard for the specific investment objectives, financial situation or needs of any specific person or entity.

This is not a recommendation to invest or disinvest in any of the companies, themes or sectors mentioned. They are included for illustrative purposes only.

The information contained herein is based on materials and sources deemed to be reliable; however, Canaccord Genuity Wealth Management makes no representation or warranty, either express or implied, to the accuracy, completeness or reliability of this information. Canaccord is not liable for the content and accuracy of the opinions and information provided by external contributors. All stated opinions and estimates in this article are subject to change without notice and Canaccord Genuity Wealth Management is under no obligation to update the information.

¹ Source: Facebook spending $10 billion this year on its metaverse division – The Verge Top 25 Players of the Metaverse – TechRound

²Source: Microsoft/Activision Blizzard website (Microsoft to acquire Activision Blizzard to bring the joy and community of gaming to everyone, across every device – Stories)