The Metaverse – Business as usual

The Metaverse is chugging along. 

• 12 months is a long time in the technology sector, and while no one is interested in the Metaverse anymore, the developments and product launches are continuing just as RFM forecasted in 2022 when The Metaverse was the hottest thing since sliced bread.
• The mood is so bleak that when the word metaverse is mentioned in conjunction with Apple’s Vision Pro device, the fan base and technology press will claim that it is not a metaverse device but something else.
• The reality is that the Metaverse is alive and well with new devices being launched all of which are incrementally moving the technology forward and hopefully at some point, it will be good enough to attract mass market attention.
• This is where Apple’s Vision Pro is interesting because it makes large strides in improving the user experience albeit by using extremely expensive components, and a lot of compute which results in awful battery life and a nosebleed price.
• The best example of this is the idea to separate the sensing of surroundings and the digital experience into two discrete systems that can operate optimally and then be blended together as needed.
• Everyone else uses a single system to do both which is why everyone else’s hand gestures and recreation of reality are 3^rd rate and have to rely on controllers.
• Meta Platforms’ latest mass-market VR device the Quest 3 which is about to be formally launched is no match for Apple’s Vision Pro, but then again it is 1/7^th of the price.
• Hence, I think it will outsell the Vision Pro many times over.
• It will be lighter with much-improved optics and user experience, but it is not going to break any barriers.
• This is not unexpected as RFM research (see here and here) does not expect the technical problems of The Metaverse to be anything like solved before 2025, and if there is going to be mass market adoption, this is unlikely to happen before 2028.
• Against that backdrop, The Metaverse remains on schedule which may be accelerated somewhat by Apple’s entry and its different approach on how to solve the user experience shortcomings.
• Consequently, there have been no ratings downgrades no estimate cuts and looking at the expectations set by RFM last year, everything appears to be on schedule.
• What has changed is that the FOMO crowd got bored with the Metaverse when interest rates started to rise, and abandoned the sector only to divert their attention in force to generative AI.
• Consequently, the Metaverse stocks like Unity and Roblox are trading close to all-time lows and remain deeply out of favour.
• Despite this, the Metaverse remains largely uninvestable because all of the companies that are in pole position to flourish as a result of the Metaverse currently make very small or no revenues from it.
• This means that for the next 3 years or longer, the share prices of these companies will be determined by factors that have nothing to do with the Metaverse.
• This is why I think that The Metaverse should be viewed as optionality on a different but related business that needs to make its own investment case.
• Meta Platforms is a great example of this where the shares have more than doubled this year which has absolutely nothing to do with the Metaverse and everything to do with cost-cutting and efficiency.
• Consequently, my view on The Metaverse is unchanged in that it remains the leading device category to take over from the smartphone but there is no guarantee that it will.
• I am keeping an eye on both Roblox and Unity both of which are in an excellent position and when I can make a value case for their existing businesses, this will be the right time to own them.
• Until then, I am happy to wait.