All across the metaverse: What is it and what investment opportunities does it present?

Original Content: AXA IM

Technology is increasingly being layered onto everyday life, from entertainment and socialising to working at home, in offices, factories and warehouses. If ‘web 1.0’ was about connecting people to information, and ‘web 2.0’ was about linking people via the social media revolution, powered by broadband, the metaverse is ‘web 3.0’ – connecting people to people, places and things. The metaverse allows individuals to interact with each other in shared online spaces, for example working, shopping or watching a concert in real time, in a way that has never been possible before.

The metaverse is already sizeable and growing at rapid pace. Research estimates the metaverse market, worth some $500bn in 2020, could grow to $685bn in 2022 – and the sector as a whole could reach nearly $800bn by 2024.1 That represents a compound annual growth rate of around 13%.

Across the metaverse, we have identified four main sectors - gaming, socialising, working and enabling - all of which we believe present potentially exciting long-term investment opportunities.

Metaverse gaming

Gaming can be considered as the first building block of the metaverse, where we can find some of the most advanced developments in immersive, large-scale experiences – and the market is growing.

For example, the number of virtual and augmented reality headsets shipped – used in gaming but also in many aspects of the world of work – is expected to more than quadruple from four million in 2021 to 42 million in 2025.2

Roblox is one of the leading metaverse gaming companies with almost 55 million average daily active users and in 2021 it increased its annual revenue by 108% to $1.9bn.3 As well as allowing people to both play and design their own games, Roblox has launched partnerships with brands including Nike, where players can purchase branded virtual clothing and accessories to dress their avatars.4 Other companies looking to use the metaverse to build brand awareness include luxury clothing label Gucci and car manufacturer Hyundai.5

There are also potential investment opportunities in the companies providing the software to power these virtual worlds. For example, Unity Software is a cross-platform gaming engine which was used by more than 200,000 games last year, helping grow its revenue by 44% from 2020.6  

It has acquired a number of firms recently including Weta Digital, the visual effects company behind a plethora of Hollywood blockbusters including Avengers: End Game and Avatar, as well as The Hobbit and Lord of the Rings trilogies.7 We believe Unity has the tools to build increasingly sophisticated metaverse experiences, while it is also making headway in sectors outside gaming, such as engineering, construction and aerospace.

Creating new social experiences

Socialising is taking place increasingly online and forms a fundamental pillar of the metaverse. We expect to see continued developments in this space as individuals seek greater opportunities to connect. Meta Platforms’ (formerly Facebook) chief executive Mark Zuckerberg has made a significant commitment to building the metaverse, and announced capital expenditure of $29bn to $34bn this year – compared to $19bn last year - including investing in artificial intelligence and machine learning.8 Meta has also announced a $50m global research programme working with partner organisations to ensure the metaverse is developed responsibly.9

With an audience keen to enjoy new virtual experiences, we believe that Snap is another company which is well positioned to benefit from the development of the metaverse. With an average of 319 million daily active users, over 75% of people aged 13 to 34 in the US, UK, Australia, France and the Netherlands use its Snapchat social networking app, according to the company.10 And it goes beyond simply connecting with friends - for example, users can try on clothing and beauty products using augmented reality, to see how something will look before they purchase.11

Opportunities for the future of work

The metaverse also brings exciting opportunities for the future of work, allowing us to collaborate and meet in a more immersive way. We are likely to see this in offices and hybrid working models where employees work from home and connect and collaborate online.

Virtual reality also allows great strides to be made in areas such as healthcare. One such example is medical device creator Penumbra. It built a virtual reality system for patients needing neurological rehabilitation where patients can complete their therapy in a fully immersive world, while the system also captures data and means exercises can be tailored to aid recovery.12

There are also applications in industry; for example, Autodesk is a software company supporting industries including manufacturing and engineering in creating digital twins - 3D versions of real objects. Such prototypes can help make the design process more cost-effective, efficient, safer, and allow even greater innovation.

Another sector that is embracing the metaverse is real estate. Matterport’s platform transforms real-life spaces into digital models, so estate agents can provide prospective homebuyers with virtual reality viewings of properties, which Matterport says secures an average of 4% to 9% higher sales price, as well as making viewings more efficient and convenient for the buyers.13 With limited competition in residential real estate, we view Matterport as one of the key beneficiaries from the increased demand for digital versions of the real world in the metaverse.

Enablers key to setting the pace

Behind all this sits the enablers – such as semiconductors, network infrastructure and the technologies that enable apps to run, as well as digital payment companies and cyber security firms. Enablers will be key to support the pace of development for the metaverse, including reliability, latency (how fast data can travel) and bandwidth.

We believe semiconductor company Nvidia is positioned to be a potentially important player in this space over the coming years – its Omniverse platform enables 3D simulation and design and is likely to be a building block of the metaverse. Meta Platforms, for example, is building its artificial intelligence ‘supercomputer’ on Nvidia’s systems, which aims to – among other things – power real-time translations from multiple languages to allow large groups of people to collaborate together, whether that iTechnology is increasingly being layered onto everyday life, from entertainment and socialising to working at home, in offices, factories and warehouses. If ‘web 1.0’ was about connecting people to information, and ‘web 2.0’ was about linking people via the social media revolution, powered by broadband, the metaverse is ‘web 3.0’ – connecting people to people, places and things. The metaverse allows individuals to interact with each other in shared online spaces, for example working, shopping or watching a concert in real time, in a way that has never been possible before.

The metaverse is already sizeable and growing at rapid pace. Research estimates the metaverse market, worth some $500bn in 2020, could grow to $685bn in 2022 – and the sector as a whole could reach nearly $800bn by 2024.1 That represents a compound annual growth rate of around 13%.

Across the metaverse, we have identified four main sectors - gaming, socialising, working and enabling - all of which we believe present potentially exciting long-term investment opportunities.

Metaverse gaming

Gaming can be considered as the first building block of the metaverse, where we can find some of the most advanced developments in immersive, large-scale experiences – and the market is growing.

For example, the number of virtual and augmented reality headsets shipped – used in gaming but also in many aspects of the world of work – is expected to more than quadruple from four million in 2021 to 42 million in 2025.2

Roblox is one of the leading metaverse gaming companies with almost 55 million average daily active users and in 2021 it increased its annual revenue by 108% to $1.9bn.3 As well as allowing people to both play and design their own games, Roblox has launched partnerships with brands including Nike, where players can purchase branded virtual clothing and accessories to dress their avatars.4 Other companies looking to use the metaverse to build brand awareness include luxury clothing label Gucci and car manufacturer Hyundai.5

There are also potential investment opportunities in the companies providing the software to power these virtual worlds. For example, Unity Software is a cross-platform gaming engine which was used by more than 200,000 games last year, helping grow its revenue by 44% from 2020.6  

It has acquired a number of firms recently including Weta Digital, the visual effects company behind a plethora of Hollywood blockbusters including Avengers: End Game and Avatar, as well as The Hobbit and Lord of the Rings trilogies.7 We believe Unity has the tools to build increasingly sophisticated metaverse experiences, while it is also making headway in sectors outside gaming, such as engineering, construction and aerospace.

Creating new social experiences

Socialising is taking place increasingly online and forms a fundamental pillar of the metaverse. We expect to see continued developments in this space as individuals seek greater opportunities to connect. Meta Platforms’ (formerly Facebook) chief executive Mark Zuckerberg has made a significant commitment to building the metaverse, and announced capital expenditure of $29bn to $34bn this year – compared to $19bn last year - including investing in artificial intelligence and machine learning.8 Meta has also announced a $50m global research programme working with partner organisations to ensure the metaverse is developed responsibly.9

With an audience keen to enjoy new virtual experiences, we believe that Snap is another company which is well positioned to benefit from the development of the metaverse. With an average of 319 million daily active users, over 75% of people aged 13 to 34 in the US, UK, Australia, France and the Netherlands use its Snapchat social networking app, according to the company.10 And it goes beyond simply connecting with friends - for example, users can try on clothing and beauty products using augmented reality, to see how something will look before they purchase.11

Opportunities for the future of work

The metaverse also brings exciting opportunities for the future of work, allowing us to collaborate and meet in a more immersive way. We are likely to see this in offices and hybrid working models where employees work from home and connect and collaborate online.

Virtual reality also allows great strides to be made in areas such as healthcare. One such example is medical device creator Penumbra. It built a virtual reality system for patients needing neurological rehabilitation where patients can complete their therapy in a fully immersive world, while the system also captures data and means exercises can be tailored to aid recovery.12

There are also applications in industry; for example, Autodesk is a software company supporting industries including manufacturing and engineering in creating digital twins - 3D versions of real objects. Such prototypes can help make the design process more cost-effective, efficient, safer, and allow even greater innovation.

Another sector that is embracing the metaverse is real estate. Matterport’s platform transforms real-life spaces into digital models, so estate agents can provide prospective homebuyers with virtual reality viewings of properties, which Matterport says secures an average of 4% to 9% higher sales price, as well as making viewings more efficient and convenient for the buyers.13 With limited competition in residential real estate, we view Matterport as one of the key beneficiaries from the increased demand for digital versions of the real world in the metaverse.

Enablers key to setting the pace

Behind all this sits the enablers – such as semiconductors, network infrastructure and the technologies that enable apps to run, as well as digital payment companies and cyber security firms. Enablers will be key to support the pace of development for the metaverse, including reliability, latency (how fast data can travel) and bandwidth.

We believe semiconductor company Nvidia is positioned to be a potentially important player in this space over the coming years – its Omniverse platform enables 3D simulation and design and is likely to be a building block of the metaverse. Meta Platforms, for example, is building its artificial intelligence ‘supercomputer’ on Nvidia’s systems, which aims to – among other things – power real-time translations from multiple languages to allow large groups of people to collaborate together, whether that is on a research project or playing a game.14

A potential long-term investment theme

As with any long-term growth theme, we believe there will be winners and losers among companies that are exposed to the metaverse, as the investment universe develops over time. As such, we believe that stock selection is crucial.

Without a doubt, the metaverse will continue to impact our lives, in ways that perhaps we can’t even imagine. Whether it is socialising, gaming, working or industry, or something else yet to be developed, we believe that the metaverse can bring people together in new ways – with the potential only just being tapped. We believe we are at the early stages of a long-term trend which is growing rapidly, addressing a broad range of global companies and potential investment opportunities.s on a research project or playing a game.14

A potential long-term investment theme

As with any long-term growth theme, we believe there will be winners and losers among companies that are exposed to the metaverse, as the investment universe develops over time. As such, we believe that stock selection is crucial.

Without a doubt, the metaverse will continue to impact our lives, in ways that perhaps we can’t even imagine. Whether it is socialising, gaming, working or industry, or something else yet to be developed, we believe that the metaverse can bring people together in new ways – with the potential only just being tapped. We believe we are at the early stages of a long-term trend which is growing rapidly, addressing a broad range of global companies and potential investment opportunities.

Sources

[1] Source: Bloomberg Intelligence

[2] Source: IDC, Credit Suisse

[3] Roblox - Roblox Reports Fourth Quarter and Full Year 2021 Financial Results

[4] Nike teams up with Roblox to create a virtual world called Nikeland (cnbc.com)

[5] Inside Gucci and Roblox’s new virtual world | Vogue Business / Hyundai Motor vitalizes future mobility in Roblox Metaverse Space, Hyundai Mobility Adventure

[6] Unity Technologies - Unity Announces Fourth Quarter and Full Year 2021 Financial Results

[7] Filmography | Weta Digital (wetafx.co.nz)

[8] Meta - Facebook Reports Third Quarter 2021 Results (fb.com)

[9] Building the Metaverse Responsibly | Meta (fb.com)

[10] Snap Inc. - Investor Relations

[11] Snap Inc. Announces New Augmented Reality Tools and Camera Experiences for Snapchatters, Creators, and Businesses | Business Wire

[12] About Us - REAL System

[13] 3D Camera and Virtual Tour Platform - Matterport

[14] Meta Collaborates with NVIDIA on AI Research Supercomputer | NVIDIA Blog

Disclaimer

This document is for informational purposes only and does not constitute investment research or financial analysis relating to transactions in financial instruments as per MIF Directive (2014/65/EU), nor does it constitute on the part of AXA Investment Managers or its affiliated companies an offer to buy or sell any investments, products or services, and should not be considered as solicitation or investment, legal or tax advice, a recommendation for an investment strategy or a personalized recommendation to buy or sell securities.

Due to its simplification, this document is partial and opinions, estimates and forecasts herein are subjective and subject to change without notice. There is no guarantee forecasts made will come to pass. Data, figures, declarations, analysis, predictions and other information in this document is provided based on our state of knowledge at the time of creation of this document. Whilst every care is taken, no representation or warranty (including liability towards third parties), express or implied, is made as to the accuracy, reliability or completeness of the information contained herein. Reliance upon information in this material is at the sole discretion of the recipient. This material does not contain sufficient information to support an investment decision.

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