Investors and the Metaverse
Last year, it was announced that Mark Zuckerberg would be launching Meta—the parent organisation of social media platforms like Facebook, Instagram, and WhatsApp. The intentions behind this rebrand would be to facilitate social experiences via the use of 3D technology—namely, the metaverse.
It has been six months since the launch, and some are still unclear about what the metaverse is and how this change will impact investors.
Into the metaverse
The term ‘metaverse’ was coined by American writer Neal Stephenson. It was used in his 1992 novel Snow Crash to describe what then seemed like a far-off vision of the future of augmented reality and other digital concepts. Now, 30 years later, the metaverse is very real.
To put it simply, the metaverse is a virtual reality space that will allow people to “connect”, as Zuckerberg says. It is a space to work, play, meet with others, and attend virtual events. Ultimately, consumers will be able to live more aspects of their lives digitally. Many metaverse platforms even allow you to purchase digital property and other assets.
What does the metaverse mean for investors?
Amid a rebrand and some changes to the company business model, Meta faced a dramatic decrease in value earlier in the year. After revealing Facebook’s first-ever fall in daily active user numbers, Meta lost $230 billion in its market value. This was not entirely unexpected, though. Zuckerberg had predicted that Apple’s new privacy rules could result in Meta’s loss of $10 billion in sales this year.
User numbers are only expected to decline further as Russia has now deemed Meta as an extremist organisation and has since blocked its citizens from using Facebook and Instagram. This is significant because Russia is host to millions of users.
Investors were thus prepared for another tough quarter. Eyes were on Meta’s first quarter report, which came out last Wednesday. The company’s earnings per share, daily active users, and average revenue per user all came in higher than expected. However, revenue came in below expectations.
As of now, TikTok is Meta’s biggest competitor. This is largely because young users are flocking to the former while the latter struggles to retain them on Facebook and Instagram. This is an issue because advertising accounts for 97% of Meta’s revenue, and young users are a crucial advertising demographic for the company. In an attempt to attract this key demographic, Meta is putting more emphasis on its Reels. In the past, however, the company has struggled to monetise this shortform video content feature.
Potential for new markets
As 3D and virtual reality technology advances, more investment opportunities will arise. One of the most interesting new markets which has been born out of these advancements is virtual real estate.
Those seeking to purchase real estate in the metaverse see the potential for these virtual properties to appreciate overtime, much like their real-world counterparts. Of course, property in the metaverse has no intrinsic value. It cannot provide shelter like a physical property can. However, this is the way markets often work. In the same way consumers have made beach-front properties more valuable than others, properties in the metaverse will increase in value if they are, for example, closer in proximity to a major digital landmark.
There is even potential for passive income through this type of real estate. Virtual landowners are buying assets to charge rental fees for others to host events from their land.
Can Meta turn things around?
Suffice to say, advertisers are not yet sold. While Meta is devising new monetisation schemes, adoption of these schemes is low. And while Facebook and Instagram continue to see a decline in usage, it is the metaverse that is eating away at funding that could be used for Meta’s core businesses. Meta raised alarm bells last year when it funnelled $10 billion into their virtual reality platform. If the new platform had as many users as Facebook’s 3 billion, this would not have been as alarming.
What some may fail to recognise is that the metaverse is more than Zuckerberg. While he is developing his own version of the metaverse, there are other platforms like Decentraland, Roblox, and a growing number of 3D virtual worlds that would all be categorised as metaverses.
Many are hopeful and see potential for the metaverse as the future of connectivity. Notable companies are already buying into it. For example, Spotify opened their own interactive gaming island on Roblox. If other companies follow suit, this will have a monumental impact on markets and will perhaps give Meta the boost it needs.
If consumers continue to apply worth to what they are interested in, investors will follow. However, as more metaverses emerge, competition will increase. Streaming platforms saw a years’ long boom, but recent months have indicated a slowdown and a crowded market. Will the 3D world be next?
Private Client Consultancy can help you diversify your portfolio while also effectively assessing risk. If you are interested in learning more about our services, contact us today.
