Nolan Hoffmeyer

Nolan Hoffmeyer

Thematics Asset Management

Walid Azar Atallah

Walid Azar Atallah

Thematics Asset Management

“The metaverse is about to change everything,” Vanity Fair boldly claimed last year. “One day soon, we’ll be hanging NFTs on the walls of our digital homes and buying Balenciaga tops for our digital selves.”1

That may seem a stretch. Interest in NFTs (non-fungible tokens), for instance, has tumbled of late, likely reflecting a fall in global liquidity that has seen speculative assets swoon. Then there’s the fact that no one really knows what ‘the metaverse’ – a loose constellation of fledgling technologies like virtual and augmented reality – will eventually look like. A utopian virtual world beckons, the likes of Mark Zuckerberg giddily promise, though it remains mostly a design concept for now.

Digital Balenciaga tops and online mega mansions aside, however, the metaverse really could represent a paradigm shift, tech analysts say. If Web 2.0 connected everyone through social media and broadband, then the metaverse, or Web 3.0, will offer a rich, immersive reality, where individuals can inhabit new spaces to play, shop, and even work together. What the iPhone did for our lives back in 2007, the metaverse could soon do as the next iteration of the internet.

The possibilities are boundless. Instead of hosting regular Teams meetings with colleagues, you could meet in a virtual office, each person sitting at a meeting table sipping digital coffees. If that sounds a somewhat bland, or even little spine-chilling, you could meet your friends elsewhere – for a walk along the Thames or a visit to the Louvre without the suffocating throngs of tourists.

A seamless convergence of our physical and digital lives awaits. What once sounded like science fiction is quickly being realised, thanks to rapid advances in computer chips, processors, artificial intelligence, and advanced 3D software engines.

Not surprisingly, companies of all stripes are keen to tap into the so-called meta-economy. As well as the tech giants like Meta (formerly Facebook), Nvidia, Microsoft and Google that are actively building various elements of the metaverse, fashion houses and consumer names are busy creating virtual items, with virtual goods now worth some $54 billion a year – nearly double that spent on music.2

Earlier in March, meanwhile, Dolce & Gabbana and Estee Lauder combined for the first ever Metaverse Fashion Week, a four-day extravaganza on Decentraland – a 3D virtual world with some 800,000 global users.3 Rivals like Gucci, Prada and Ralph Lauren are already lining Decentraland’s Fashion Street, the 3D world’s fashion precinct that, one day perhaps, may rival Fifth Avenue or the Champs-Élysées.

Even Paris-based luxury goods retailer LVMH has hesitantly dipped its toes into NFTs, with its talismanic CEO, Bernard Arnault, recently admitting that: “it’s compelling, it’s interesting, it can be quite fun. We have to see what the applications of this metaverse and these NFTs are.”4

For now, such moves still seem more like clever marketing ploys than genuine commercial strategies, something Arnault seems to acknowledge. But as the digital world continues to evolve, and more and more people embrace their newfound virtual identities, the metaverse could soon become simply too big and lucrative to ignore.

As JPMorgan, one of the first banks to build a presence in the metaverse, recently put it: ‘The risk of being left behind is worth the incremental investment needed to get started.’5
So, just how big a commercial opportunity is the metaverse? Estimates vary wildly. JPMorgan believes the market opportunity could top $1 trillion a year in revenues, claiming that the metaverse, as a seamless extension of our physical lives, will “infiltrate every sector in some way in the coming years.”6 That’s more than double global smartphone revenues in 2021 – revenues that have propelled Apple into becoming one of the world’s largest companies by market cap.7

Goldman Sachs has gone even further, predicting the entire metaverse could be a $12.5 trillion opportunity, based on the assumption that one-third of the current digital economy eventually moves to the metaverse, and the market continues to expand by some 35% per year.8

And Citigroup thinks it could be between an 8 and $13 trillion opportunity by 2030.9 Those are lofty, though perhaps not impossible, predictions.

There will be obvious winners at first. Much of the metaverse’s current $60 billion in yearly revenues is derived from gaming and gaming tokens, with names like Fortnite and Roblox commanding hundreds of millions of users.10

This trend will accelerate too, with play-to-earn games, growing user bases, and increasing spending in the gaming sector driving gaming revenue growth in the metaverse. It’s little wonder Microsoft recently paid $75 billion to acquire Santa Monica-based Activision Blizzard, whose massive multi-player online game, World of Warcraft, is already considered a kind of metaverse or alternate reality.11

As the metaverse continues to expand, others see even greater opportunities too. “From a corporate perspective,” wrote JPMorgan, “there are opportunities to massively scale. Instead of having stores in every city, a major retailer might build a global hub in the metaverse that is able to serve millions of customers.”12

That could unlock new opportunities in low-income countries, where billions of people are yet to become regular internet users – something that’s about to change. As the barriers to entry into new markets and verticals falls, “one of the great possibilities of the metaverse is that it will massively expand access to the marketplace for consumers from emerging and frontier economies,” JPMorgan added.13

Finally, the greater the metaverse begins to mirror and complement our real world, the more traditional jobs may migrate to digital worlds too. Real estate agents will sell plots or houses in places like Decentraland, advertisers will specialise in the metaverse, lawyers and accountants may offer services purely online to millions, and retail and marketing experts will have to adapt.

With countless new avenues and opportunities, companies of all sizes may wish to explore this potential or think about an overarching ‘metaverse strategy’.
Investors wanting to capitalise on the metaverse would do well to tread carefully for now, however, and several cautionary tales already abound.

Despite being a huge frontrunner in metaverse gaming, Roblox has tumbled some 70% since November, burning early proponents like ARK’s Cathie Wood.14 Meanwhile, the first-ever metaverse ETF has dropped around 40% this year alone.15 And interest in faddish NFTs has also fallen off a cliff, with eye-watering price markdowns for more superfluous NFTs (cartoon pictures of rocks or Jack Dorsey’s first tweet, anyone?).

Even Facebook, which has gone all-in on the idea by brashly changing its name to Meta and outlining plans to put $10 billion toward the metaverse, has failed to woo investors. A $1 trillion dollar company not long ago, its shares have nearly been cut in half since its name change last October – hardly a glowing endorsement, although it’s also faced other issues.16 The company’s market cap now sits alongside United Healthcare at around $460 billion, and behind value stalwart Berkshire Hathaway.17

What lessons can be gleaned? Taken together, such slumps that suggest much of the enthusiasm had gotten ahead of itself, particularly as the metaverse is still years away from being fully realised. Hawkish central banks looking to bring previously stratospheric asset prices back to earth certainly hasn’t helped matters either.

There are also fraught historical analogies, too. Just like the dot-com bubble, which laid the groundwork for the internet as we know it today, there will be as many losers as there are winners. And the real winners might not be crowned for years, or even decades, to come.

As the American futurist Roy Amara – in what’s now known as Amara’s law – famously explained: “We tend to overestimate the effect of a technology in the short run and underestimate the effect in the long run."18

Instead, patient investors may want to look for more dependable areas of the metaverse, such as cyber security, semiconductors, and even storage REITS - or invest with a manager that can navigate this new world for them.

Digital Balenciaga tops may await, but you don’t want to lose your shirt in real life in the meantime.

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  • NFTs: A non-fungible token is a non-interchangeable unit of data stored on a blockchain, a form of digital ledger, that can be sold and traded. It may comprise artwork or a digital asset like digital clothes and others items.
  • Decentraland: Decentraland is a 3D virtual world browser-based platform. Users may buy virtual plots of land and other items in the platform as NFTs via the MANA cryptocurrency, which uses the Ethereum blockchain
  • Digital Balenciaga: digital clothes from luxury fashion house, Balenciaga.
1 Source : Vanity Fair, 2021.
2 Source : JPMorgan, 2022.
3 Source : The Generalist, 2022.
4 Source : Highsnobiety, 2022.
5 Source : JPMorgan, 2022.
6 Source : JPMorgan, 2022.
7 Source : Counterpoint Research, 2022.
8 Source: Goldman Sachs, 2022.
9 Source: Barrons, 2022.
10 Source : JPMorgan, 2022.
11 Source : Microsoft, 2022.
12 Source : JPMorgan, 2022.
13 Source : JPMorgan, 2022.
14 Source : Yahoo Finance, June 2022.
15 Source : Roundhill Investments, June 2022.
16 Source: Bloomberg, June 2022.
17 Source: Bloomberg, June 2022.
18 Source : Oxford Reference, 2016.

This material is provided for informational purposes only and should not be construed as investment advice. Views expressed in this article as of the date indicated are subject to change and there can be no assurance that developments will transpire as may be forecasted in this article.