- “Metaverse” has become the buzzword du jour since Facebook’s name change to “Meta” in November.
- Wall Street has been rushing to dub the metaverse as the next multi-trillion-dollar opportunity.
- Analysts from Bernstein, Jefferies, and Morgan Stanley break down the potentials and risks.
Metaverse has become the buzzword du jour since Facebook’s corporate name rebrand to “Meta” in October, and so far the nebulous term has shown more promises of becoming the next big thing than a passing fad.
On Thursday, Mark Zuckerberg’s social media giant took another step towards its metaverse vision by making its consumer-oriented virtual reality space “Horizon Worlds” available for free to adults in the US and Canada. Meta has said it expects its investment in the metaverse to cut overall operating profits by some $10 billion this year.
Through Meta’s efforts, the metaverse concept has not only gained widespread recognition but has also become a top priority for tech companies looking to compete in the future. The word itself was mentioned 449 times on third-quarter earnings calls, four times more than in the second quarter, according to Bernstein’s analysis.
And it is not only for the tech enthusiasts. Microsoft founder Bill Gates thinks most virtual meetings will move to the metaverse within 3 years, and workers will interact using VR headsets and digital avatars. Weddings, fashion shows, and music concerts are already taking place in the metaverse, driving the prices of digital properties to millions.
For crypto investors, many metaverse projects such as axie infinity (AXS) have been running at full steam. To Wall Street, the metaverse revenue opportunity, which could touch a wide range of industries including technology, entertainment, education, and retail, is just getting started.
Morgan Stanley analysts believe that the addressable US consumer expenditure to monetize within the metaverse is at $8.3 trillion. Bernstein analysts estimate the size of metaverse-related markets to be $2 trillion and growing. Evercore ISI analysts think that the metaverse can account for trillions of dollars of value creation within the next decade. Ark Invest CEO Cathie Wood says the metaverse will be a multi-trillion-dollar opportunity and impact every aspect of the economy in ways that “we cannot even imagine right now.”
So how can investors capture the metaverse opportunity? What are some of the key potentials and risks of betting on the purported next big thing? Below is what three Wall Street firms are saying.
Bernstein: ‘Metaverse is evolutionary, not revolutionary… yet’
Bernstein analysts led by Mark Shmulik said in a December 7 note that the metaverse will be a “natural progression” for internet-based connectivity. As technology evolves to bridge the gap between our digital and physical realities, the metaverse will become more functional and seamless.
But don’t expect cellphones and laptops to suddenly disappear as new use cases of the metaverse emerge, Shmulik said, adding that pieces of the metaverse already exist. Current examples include hardware such as Facebook’s Quest, Microsoft’s HoloLens, and the Apple Watch; virtual gaming worlds like Fortnite and Roblox; as well as Snapchat’s City Painter and Niantic’s Pokémon GO.
These and other relevant markets can grow to more than $2 trillion, according to their estimates. “The timing is still unknown, as we’re early on the adoption curve and current metaverse technology doesn’t offer the necessary value proposition for many users,” Shmulik said. “But following an S-curve over the next few years, we could see incremental revenue and opportunities materializing in many markets.”
Jefferies: ‘The metaverse will start with immersive gaming experiences’
Jefferies analysts led by Simon Powell wrote in a December 6 note that the metaverse could be the “biggest disruption humans have ever experienced” and lead to the “digitization of everything.” But even a single metaverse could be at least a decade away from us.
While Powell expects the metaverse to encompass all aspects of human activities eventually, he believes that the adoption will start with games, entertainment, and social media.
In the gaming sector, Roblox (RBLX), Minecraft owner Microsoft (MSFT), and privately held Fortnite creator Epic Games are already creating metaverse-like experiences. Traditional game makers including Activision Blizzard (ATVI), Electronic Arts (EA), and Take-Two Interactive Software (TTWO) are also on their way to building their future metaverse.
Investors can also look to blockchain-based games such as decentraland (MANA) and the sandbox (SAND) for opportunities. “What is groundbreaking here is the idea that assets won or created in the games can be taken from the game and used elsewhere either in the physical or digital world,” Powell wrote. “These games are challenging the closed-loop nature of many other multiplayer games where assets can’t leave the game.”
Morgan Stanley: The metaverse has an $8 trillion TAM but adoption won’t be easy
Morgan Stanley analysts led by Brian Nowak expect the metaverse to operate as an advertising and e-commerce platform for offline products, which means that the addressable US consumer expenditure to monetize is at $8.3 trillion.
Despite the gigantic total addressable market, metaverse adoption will not be rapid or easy due to the strong digital media and e-commerce offerings available now, he wrote in a November 16 note.
“This means that any metaverse is likely going to need to partner to drive adoption…or develop its own new ‘killer app/offerings’ to drive mass adoption,” he said. “In the end, we have to ask, what consumer pain-point(s) will a metaverse solve for hundreds of millions of people?”
Regulatory scrutiny and the potential loss of privacy could also pose challenges for the metaverse adoption. Although the number of social media users has continued to grow in the face of targeted ads, heavy monetization, and cybersecurity issues, Nowak is not so sure that consumers will be accepting those practices in the metaverse.
“… looking across the next 10+ years we are admittedly less certain that hundreds of millions of people will choose to share even more detailed digital information on what they are doing and who they are doing it with,” he wrote.