Back to top

The Metaverse Investment Playbook

Read MoreHide Full Article

We live in an age where ostentatious billionaires have the resources (and creative ambition) to make their favorite science fiction ideas come to life. The pandemic rapidly accelerated technological adaption, thrusting us into a futuristic economic environment where anything is possible, even a virtual universe that fits in the palm of your hand, aka the metaverse.

The metaverse is a network of digitally rendered 3D worlds that allow users to interact with one another virtually. If you have ever seen movies like Ready Player One or Avatar, you have a pretty good idea of what this digital technology is about.

The metaverse's implementation is perfectly positioned for the digitally-fueled post-pandemic economy where remote and mobile interactions are becoming the norm. Uses of the metaverse are much more extensive than most people realize with functionality that ranges from gaming & pure social interactions to a virtual workplace predicated on productive remote collaboration.

The Man Behind The Metaverse

The metaverse was originally coined in 1992 by renowned author Neal Stephenson, who was known for his work in speculative-fiction and making some of his ostensibly visionary speculations come to fruition. Stephenson's revolutionary work with futuristic ideas explores mathematics, physics, cryptography, and many other fundamentally sound concepts that have piqued the interest of some very influential Silicon Valley magnates.

Stephenson has been an innovative influence for some of the world's most profound tech pioneers like Bill Gates, Peter Theil, John Carmack (principal developer of the Oculus VR), and Jeff Bezos was so inspired by Stephenson's work that he hired him on to Blue Origin for seven years in the early 2000s. It's also been widely assumed that Stephenson was the inspiration behind cryptocurrencies, with his suppositional theories on digital currencies (Cryptonomicon released 1999) surfacing a decade before the creation of Bitcoin.

Zuckerberg Lights The Metaverse Flame

Facebook's (FB - Free Report) CEO and Founder, Mark Zuckerberg, appears to have also been taken by Stephenson's forward-thinking intellectual's work. In the wake of a seemingly endless regulatory cyclone surrounding the company (the latest being a probe into the emotional/mental "safety" of its users), Zuckerberg decided it was time to shift his business's narrative.

Facebook officially rebranded its parent company to "Meta," expressing the firm's full commitment to bringing the metaverse to life. Zuckerberg has had this metaverse vision ever since it purchased Oculus and its leading consumer VR operations back in 2014 for $2 billion.

Meta announced last fall that it would be pouring $10+ billion into the buildout of its virtual world. Management has stated that some aspects of the metaverse's functionality would be mainstream in as little as 5 years.

With 3.6 billion humans utilizing one or more of Meta's leading social interfaces (Facebook, Instagram, WhatsApp, & Messenger), roughly 75% of the internet accessing world is connected through this company.

Meta's ubiquitous reach and ownership of the world's #1 VR platform, Oculus, makes its proposed metaverse an incredibly attainable objective. 

Microsoft (MSFT - Free Report) To Acquire Activision Blizzard (ATVI - Free Report)

This morning, Microsoft (MSFT - Free Report) announced that it would be acquiring Activision Blizzard (ATVI - Free Report) in a $68.7 billion all-cash deal to competitively position itself for the next generation of gaming in the metaverse. This would position Microsoft as the third-largest gaming enterprise on earth (by revenue), behind Tencent (TCEHY - Free Report) and Sony Group .

Microsoft's deepening pockets have catalyzed a recent spending spree, racking up 14 acquisitions in less than 52-weeks, not even including the 8 strategic buy-ups it made in its videogame development segment in 2021 alone. Nonetheless, no prior deal comes close to the magnitude of this nearly $70 billion purchase, marking this corporation's largest acquisition by leagues.

Microsoft saw a unique value opportunity in ATVI to significantly expand its videogame presence following the stock-crushing allegations of unaddressed workplace misconduct (specifically sexual-misconduct) at Blizzard. These allegations surfaced in July 2021 when legal suits began to flood in claiming the workplace had a female discriminating "Frat Boy" culture. Blizzard was forced to clean house at the management level, causing critical product delays as well as catalyzing a nearly 50% drawdown in its share price.

I see this purchase of ATVI as a revitalizing value play that would benefit both enterprises. This merger would solidify Microsoft's domestic gaming leadership and stake its claim in the nascent metaverse, while this video game giant gains the managerial expertise of this nearly 50-year old tech innovator. Activision Blizzard holds one of the top catalogs of go-to videogames across platforms capturing gamers with various degrees of dedication. Names like Call of Duty, World of Warcraft, and Candy Crush will now be a part of Microsoft's rapidly expanding gaming portfolio.

Other Plays

There are numerous ways to play this nascent metaverse industry, whether it be explicitly or implicitly tied to this new virtual world. Roblox (RBLX) is the most apparent explicit play for this developing technology, with Zuckerberg citing this company by name when he initially presented the idea last fall. This interactive online universe will be ripe with cyber threats, positioning CrowdStrike's (CRWD - Free Report) best-in-class AI-driven cybersecurity operations on the top of the implicit metaverse playbook. 

NVIDIA's (NVDA - Free Report) best-in-class graphics rending chips will undoubtedly be a core component of Oculus's visual functionality, but the stock is extraordinarily richly valued (to say the least) at 62x P/E. On the other hand, Snap's (SNAP - Free Report) visually-powered value proposition has seen its shares pounded in recent months due to its finicky youthful user base. However, the real value of this business doesn't come from its social media profile but rather from its cutting-edge augmented reality filters, which I see as much more consequential. I wouldn't be surprised if SNAP gets snatched up by one of the mega-cap tech outfits if its market value continues to falter lower.