What is the Metaverse Anyway?

American markets today, Friday, viewed several hours before the opening at 9:30 a.m. EST, appear set to start extremely negative with the DOW, S&P 500 and NASDAQ deeply in the red, reflecting renewed virus fears involving a new COVID variant while the World Health Organization attempts to measure its seriousness.

Canadian markets also look poised to open lower with the TSX 60 slowly sinking.

European markets have already opened at time of writing and began the trading day with a steep plunge reflecting investor worries about the variant, new restrictions and the likelihood of more to come. Not surprisingly, airline stocks took a major hit at the market opening. The FTSE 100, DAX and CAC 40 are deeply in the red at time of writing. Some estimates suggest a million new cases in Europe every day. The surge is affecting consumer morale and spending, according to a Reuters report. Europe has the unhappy distinction of accounting for more than half of the average 7-day infections globally and about half of the latest deaths, according to a Reuters tally and the continent is facing growing concerns about the economic implications.

Other factors are dragging on the European economy, including weak German sentiment, according to Jeremy Thomson-Cook, Chief Economist at London-based payments firm Equals Money. The comments on Wednesday by well-known economist Klaus Wohlrabe forecasting stagnation in Germany set the tone, according to Thomson-Cook. “Remarks by economist Klaus Wohlrabe gave a damning assessment of the German economy. Wohlrabe commented that there was no letup of supply chain bottlenecks, that the majority of companies were planning price increases and he expects stagnation in the last quarter of 2021,” he explains.  Compounding that unhappy outlook, Germany’s new coalition government stopped outgoing Chancellor Merkel’s plans for a two-week lockdown.

Amongst precious metals, gold and silver are trending up.

Amongst currencies, the British pound sterling and Euro are up against the American greenback while the Canadian dollar is trending down.

One aspect of financial planning and investment that invariably confuses investors is the specialized terminology. What exactly is the accounting rate of return and why do we take AUM (assets under management) so seriously?

And now, thanks to Mark Zuckerberg at Facebook we have to understand the metaverse – and its investment implications. Zuckerberg recently announced that Facebook would be re-named and re-branded Meta. “Today we are seen as a social media company, but in our DNA, we are a company that builds technology to connect people, and the metaverse is the next frontier just like social networking was when we got started,” he said in making the announcement.

(A rough translation would be: ‘We want to stay on top of technology developments.)

“Our hope is that within the next decade, the metaverse will reach a billion people, host hundreds of billions of dollars of digital commerce, and support jobs for millions of creators and developers,” he said at the time.

(A rough translation would be: “There is big money here and we want to get into position to get a large part of it.”)

In the bigger picture, the metaverse can be understood as one of several relatively new concepts that require effort to understand and careful thought before investing. Others include cyberstocks, ESG (environmental, social and corporate governance) the green tidal wave and EV (electric vehicles).

Whether the metaverse gets to a billion people and hundreds of billions of dollars remains to be seen but, in the meantime, some investors might be attempting to understand the concept and whether it has any investment implications.

The metaverse can be considered a parallel economy, suggests Ivana Delevska, founder and Chief Investment Office at SPEAR Invest in New York. Delevska says that the parallel economy has three main subsectors: gaming, industrial and social media.

Within the gaming sector there are game companies such as Roblox Corp, which currently has a price target of $150 at Morgan Stanley and lower targets at other companies.

The industrial and manufacturing sector – in terms of the metaverse – has been a concept for over ten years, Delevska says. However, the technology was not ready until recent times but now includes companies like Nvidia Corp. which provides technology platforms where users and create and integrate their plans. Nvidia has a target price of $400 at Rosenblatt Securities, Credit Suisse and Needham & Co., with lower target prices at other companies.

The social sector certainly includes Facebook. “The opportunity here is from advertising and retail,” she says. In effect, private companies like Decentraland and Sandbox have created their own metaverses.

Investing in the metaverse means investing in one or more of: the companies that make the hardware, companies that provide tools to build the metaverse and companies that provide the platforms. An investor can also invest in the final product such as real estate being sold on a platform.

Each sector has opportunities she says, with the caveat that some newer smaller companies do not have large comforting returns yet. Moreover, the future is still being written. “For social it is going to be a huge market, but it is too early to tell who the winners will be,” she warns.

Investing in the metaverse may not be for very conservative investors with relatively short horizons but for others, it merits at least an exploratory conversation about the risks and potential rewards with a professional financial advisor

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 Disclosure: I do not own any shares in any company mentioned in this column.

Al Emid is a financial journalist, broadcaster and author with two books underway. The Emid Report on Volatility 2022 is scheduled for release in January 2022 and his book on overseas investing is scheduled for release in January 2023.