A beginner's guide to investing in the metaverse

Investors willing to embrace the new reality could have an early mover advantage, with the sector forecast to hit $800bn by 2024, analysts say

If you thought investing in the real world was complicated, then watch out: investors now need to get their heads around the metaverse, too.

Facebook founder Mark Zuckerberg reckons it’s “the next frontier in connecting people”, which is why he rebranded the social media platform as Meta last year.

But what exactly is it?

The metaverse is “virtual reality that may become an everyday reality”, says Tarik Chebib, chief revenue officer at Capital.com.

It is the next phase in the evolution of the internet, where the physical world meets with virtual and augmented reality (AR), he says. A place where “people interact in a shared environment made real through specialist virtual reality [VR] headsets, such as Oculus, or glasses”.

Investors willing to embrace the new reality have an early mover advantage, with Bloomberg Intelligence forecasting the metaverse will be worth $800 billion by 2024, Mr Chebib says.

“The internet will end as we know it and the metaverse will totally reshape the global economy.”

Gamers already interact in alternative realities on Fortnite and Roblox, and this helps us to visualise what the metaverse could look like, Mr Chebib adds.

“They have already created worlds where people buy skins, avatars and collect different things.”

The metaverse isn’t as new as it thinks, says Jonathan Tseng, senior analyst at Fidelity International.

“In 2003, an application called Second Life promised a new way of living virtually, using avatars to shop and socialise digitally. Big brands rushed to open virtual stores but it never attracted more than a million inhabitants,” Mr Tseng says.

It looks overhyped today but the metaverse may still be the long-term future of the mobile internet. Rather than gaining access to the web though a computer or mobile screen, it could “become a digital layer that can enrich and enhance the surrounding world”, he adds.

Users could one day strap on their headsets to teleport to the Olympic Games, change the view outside their window to a Caribbean beach or box with Mike Tyson.

“Cryptocurrencies and non-fungible tokens [NFTs] can be used to buy and prove ownership of virtual goods. The metaverse will also bring to life the Internet of Things and could even issue its own money,” Mr Tseng says.

The technology has a long way to go, as AR headsets “require enhanced computing power, battery life, projectors” and much more to become commercially viable, while the metaverse excludes those without internet access.

“Its immersive nature could make it even more addictive than 2D mobile apps,” Mr Tseng says.

Not every company is convinced. Nintendo is shunning the metaverse for now, citing a lack of “new surprises and pleasure”.

However, others are more excited. The metaverse is a fully immersive virtual world, in which people can perform many of the activities they could in everyday life, from socialising, shopping and playing games, to trading digital assets, says Richard Shearer, chief executive of artificial intelligence FinTech business Tintra.

“It is not yet one unified, interconnected virtual world like the internet but a universe of virtual worlds, each existing in their own silo.”

The big question is how to connect them and allow virtual goods and services to be exchanged.

Meta, formerly Facebook, has been busy filing trademarks for activities and services including financial transaction processing services, online social networking and dating, Mr Shearer says.

“McDonald’s recently filed trademarks for ‘virtual food delivery’, where meals can be ordered within a virtual world and delivered in real life.”

The metaverse even has its own real estate and last year Metaverse Group, a subsidiary of Token.com, paid more than US$2.4m for a plot of virtual land in the fashion district of metaverse platform Decentraland.

This accounted for only a fraction of last year’s $501m in real estate sales on the four major metaverse platforms — The Sandbox, Decentraland, Cryptovoxels and Somnium Space — a sum that is forecast to hit $1bn this year.

In January, one buyer spent $450,000 to be Snoop Dogg’s neighbour in the Snoopverse district of metaverse platform The Sandbox, says Jackson Franks, an analyst at MGIM.

“An infinite number of platforms within the metaverse can be created and large tech names such as Meta, Microsoft, Epic Games, Apple and many more are investing billions of dollars to build their own platforms that they hope will have the same stature as planet Earth.”

Snoop Dogg performs during the half-time show at the Super Bowl last month. In January, a metaverse investor spent $450,000 to be the rapper's neighbour in the Snoopverse district of metaverse platform Sandbox. EPA

Buying metaverse real estate is risky due to the infancy of the market and the fact that supply is infinite, Mr Franks says.

There is also a currency risk as the metaverse is blockchain based — and we all know how volatile cryptocurrencies can be.

Mr Franks is wary. “Although fascinating, I don’t see the metaverse replacing the real world anytime soon. We are constantly looking for new opportunities to add value for our investors, but the metaverse is not one of them,” he says.

Yet the metaverse already has some practical real-world uses, says Ben Barringer, global technology research analyst at Quilter Cheviot.

“Semiconductor and graphics card giant Nvidia has built its Omniverse Platform for virtual collaboration and real-time simulation, which, to take one example, BMW uses to build a virtual factory to help visualise, test and plan products, cutting up to a third off costs.”

Meta has Horizon Workrooms platforms, which are virtual reality spaces for people to meet and brainstorm ideas, and test products before they are created in the real world.

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McDonald’s recently filed trademarks for ‘virtual food delivery’, where meals can be ordered within a virtual world and delivered in real life
Richard Shearer, chief executive of Tintra

“This is the most practical application of the metaverse, and where the real returns on investment will lie,” Mr Barringer says.

Sceptics argue that the metaverse will only take off when users can ditch those cumbersome VR headsets.

“Nobody likes putting things on their face unnecessarily, which is why 3D TV glasses and Google Glass never caught on. Hardware needs to be light and wireless for people to wear for long periods,” Mr Barringer says.

“Technology may even render facial hardware unnecessary, but this seems a long way off.”

Instead, investors could focus on the hardware, especially companies making the headsets or graphics processing units (GPUs), he says.

“Oculus, owned by Meta, is the leader in headsets, while Nvidia is the leader in GPUs.”

Apple is another company to watch. “It could be the difference between wearable tech taking off or being a big flop.”

Nvidia is appealing as an investment because it already has solid gaming and AI businesses.

“If the metaverse becomes a big deal, that’s an added bonus,” Mr Barringer says.

Similarly, US semiconductor company Advanced Micro Devices could one day provide GPUs for the metaverse, while Adobe’s software will be used for meta graphic design, making them safer metaverse plays.

Look for businesses that have a strong investment case, with or without the metaverse, Mr Barringer advises.

Some opportunities may surprise investors, Mike Rhodes, chief executive of ConsultMyApp, says.

“Ray-Ban is collaborating with Meta to create smart glasses. Imagine if bulky VR headsets can be replaced by, say, contact lenses you can wear all day long.”

Any investment is an “educated gamble” in a market that doesn’t even have a universally accepted software platform, Mr Rhodes says.

“Investors who focus on companies that are generating business through targeted partnerships with smaller, earlier incarnations of the metaverse, such as Fortnite or Minecraft, may be best placed.”

Mr Zuckerberg’s Meta is the obvious play, but Mr Chebib favours Chinese social media company Tencent.

“It boasts stronger gaming expertise as the leading games distributor in China.”

Tencent also has a 40 per cent stake in Fortnite creator Epic Games and a 49 per cent stake in Roblox.

“Add in Tencent’s cloud infrastructure, AI capability and digital payments service and it appears to have most of the key metaverse ingredients,” Mr Chebib says.

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Spend some time trying to understand what is happening and identify potential opportunities
Tarik Chebib, chief revenue officer at Capital.com

Microsoft could be another metaverse winner, as it owns Minecraft, the most popular video game of all time.

“Microsoft further cemented its dominance with its purchase of Call of Duty maker Activision Blizzard for $69bn,” Mr Chebib adds.

He notes that Samsung is working hard on a 6G network that it hopes will provide the rapid speeds the metaverse needs to prosper.

“China’s Huawei is also working on 6G and expects it to hit the market in 2030.”

Metaverse transactions need processing and cryptocurrency Ethereum is the metaverse’s currency of choice, offering investors another way to jump into this virtual world.

These are still early days, so tread carefully, Mr Chebib says.

“Spend some time trying to understand what is happening and identify potential opportunities.”

Updated: April 11, 2022, 10:47 AM
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