The Metaverse – Party crasher

Meta will get more out of WWDC than Apple.

• Meta has crashed Apple’s party with the launch of the Meta Quest 3 which is almost certain to outsell Apple’s unit many times over meaning that Meta is the real beneficiary of any awakening of interest in The Metaverse caused by WWDC.
• The Meta Quest is 40% smaller than the Quest 2 but weighs about the same and has upgraded optics, processing, controllers and AR functionality.
• This is where Meta has really stuck the knife in as the most meaningful upgrade in the Quest 3 over the Quest 2 is in mixed reality.
• Mixed Reality (MR) is the easy way to mix the real and the virtual worlds and works by using cameras and a depth sensor on the outside of the VR unit to capture the real world and overlay it on the virtual world inside the device.
• There is little doubt that for The Metaverse to really take off, this will not work and instead, the virtual world will need to be overlaid on the real world via a pair of transparent lenses.
• This is augmented reality (AR) but it is so technically difficult to pull off, that no one is trying very hard to produce units for the mass market to replace the smartphone yet.
• In the meantime, MR is a halfway house and is something that Apple has referred to on a few occasions as the place where The Metaverse can exist today.
• Meta has substantially upgraded the MR capability of the Quest 3 from a couple of terrible cameras that stop the user from bumping into things to two full-colour cameras with a depth sensor unit that will properly overlay the real world on the virtual.
• This means that the Quest 3 should be able to offer a decent MR experience that it will use to ride whatever hype wave Apple creates with its device next week.
• Meta’s device will also cost something like 1/6^th of the Apple device meaning that it will sell a lot more volume to users reinforcing the size of the user base.
• The Oculus platform is the only place in The Metaverse where developers can make money given the size of the installed base, meaning that they will still tend to develop for Oculus first.
• Apple with a $3,000 device aimed mostly at developers will be way behind in this race but I am not convinced that it matters enormously yet as RFM research does not expect The Metaverse to take off much before 2028.
• This gives Apple plenty of time to get the hardware right and also work out how to migrate its massive smartphone-centric ecosystem to a metaverse-centric ecosystem should it need to do so.
• However, for the moment this is Meta’s party and if Apple breathes new life into The Metaverse story it will be Meta Platforms that reaps the real benefit.
• This is exactly why it is launching its new headset right in front of WWDC and why I suspect it has decided to push a little harder on the MR capabilities of the device.
• The Metaverse remains the leading candidate to take over digital life from the smartphone but whether this transition will ever happen is far from certain at the moment.
• Meta is in pole position to benefit the most but also Qualcomm as Qualcomm has a similar relationship with the Metaverse that Nvidia has with AI training in the cloud.
• Given, Meta’s rally, I would rather own Qualcomm over Meta as a play on the Metaverse although there is space in Meta for further cost cuts driven by its historic over-hiring and its homegrown AI which the open-source community is using with great effect.
• In reality, the segment remains uninvestable as only a tiny portion of any of these companies offers direct exposure.
• This means that buying Meta gets the investor social media with a tiny bit of Metaverse while Qualcomm gives the investor smartphones, tablets, vehicles and a very small Metaverse exposure.
• Hence from a pure valuation perspective, I would still prefer Qualcomm where the long-term diversification strategy is going well and provides a good foundation for long-term steady growth.