The Metaverse Industry: Virtual Reality Brings Real Opportunity

May 05, 2022
STRATEGY Thematic
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Investing in the metaverse means taking a stake in a fast-growing, fertile, and increasingly interconnected, digital ecosystem—one with the potential to fundamentally transform how we work, live and play. JP Morgan Chase and Morgan Stanley both project that the metaverse could become a $1 trillion industry, and there are real investment opportunities in many of the companies developing the metaverse today.1

These companies include emerging innovators and traditional household-technology names, and the metaverse investment landscape is larger than the virtual-reality ambitions of Meta Platforms, the company formerly known as Facebook. The businesses helping build the metaverse span a range of industries, such as digital gaming, data processing, social media, smart manufacturing, retail and even health care.2  As the metaverse evolves and expands, these industry pioneers could have the potential to reap rewards. Let’s look at some trailblazers on the metaverse frontier.

1. Unity: Software Powering 3D Worlds

Strolling through a 3D virtual city or fleeing a life-size T-rex is thrilling. However, those immersive, digital experiences require extremely complex coding. That’s where a company like Unity comes in. Unity provides some of the leading graphic development tools behind virtual worlds found in many popular games, including League of Legends and Pokemon Go. Unity is not a programming language like C++ or Java. Instead, the Unity system developed by the company is made up of flexible, prebuilt modules that can serve as building blocks for producing graphics and animation. The modules have been designed to operate across mobile phones, tablets, PCs, consoles, and augmented and virtual reality devices. Most of Unity’s current revenue is generated by selling a set of premium coding tools used by developers, along with a suite of tools game producers use to enhance such functionality as in-game purchases or multiplayer capabilities.3

Unity’s development tools are useful well beyond gaming. Imagine saving development costs by creating detailed 3D renderings of new products instead of making physical prototypes.4 Unity’s technology can also be used by manufacturers to build exact replicas of mechanical devices, known as digital twins, or to develop realistic workplace scenarios for virtual-reality employee training.5

Key facts:

  • Unity generated over $1 billion in revenue in 2021 and has seen revenues grow by 30% annually since 2018.6

  • Gross margins have consistently exceeded 75% during that time.7

  • As new industries move into the metaverse, Unity CEO John Riccitiello expects “60%, 70%, 80% of the time, that content built by all of those industries and all of those customers is built in Unity.”8

  • Each month, over 5 billion Unity-based applications are downloaded in more than 190 countries.9


2. Matterport: Digital Transformation of Physical Assets

When archeologists identified the 4,500-year-old tomb of the Egyptian priest-diplomat Wahty, they used a Matterport system to create a 3D, digital map of the site.10 The video and images were combined to create an immersive rendering so anyone in the world can take a virtual tour by computer.11

The same technology used to map and construct the virtual 3D rendering of the tomb has applications for other industries expanding their footprint in the metaverse.12 For example, Matterport’s advanced camera and video software already generates revenue in real estate, enabling virtual property walkthroughs for prospective home buyers.13 The company has more than six million 3D visualizations of spaces.14 This technology could accelerate the digital transformation of the U.S. real estate market, which Zillow estimates to be worth as much as $43.4 trillion.15

Key facts:

  • Matterport’s revenue has more than doubled from $46 to $111 million between 2019 and 2021, with the expectation that revenues could double again by 2023.16

  • Subscriptions by clients, such as realtors and vacation rental websites, grew from 13,000 in 2019 to 503,000 by 2021. That growth coincided with the opening of the Matterport ecosystem to third-party cameras, which increased the potential user base.17

  • With the firm focused on reinvestment and growth, Matterport has not generated positive earnings per share (EPS) yet.18 Gross margins of over 50% show the scalability of their integrated hardware-software platform, though.19

 

3. Vuzix: Smart Glasses and Other Wearables

For nearly three decades, Vuzix has focused on integrating data and computer-generated sensory information into real-world interactions through augmented reality vision systems. Enhancing the physical environment is another important aspect of the metaverse,20 and Vuzix is a leader in wearable devices doing exactly that for an increasingly digitally connected workforce.21 The company initially developed its technology for military special forces but left that business to focus on promising civilian opportunities in fields like health care and manufacturing.22 In December 2021, Vuzix announced a planned expansion into augmented reality sports and e-gaming experiences.23

Key facts:

  • Revenue has doubled from $6.7 million to $13.2 million in the past two years and is forecast to double again to $25.2 million by 2023.24

  • Vuzix Shield smart safety glasses, which give users an augmented view of equipment and provide virtual operating or repair instructions, should be on the market by the second half of 2022.25

  • The global augmented reality market is expected to grow 18% from 2021 to 2025, according to Fairfield Market Research.26


Investors May Want to Take a Broad View

Innovation across hardware, software and interactive media will be critical to the growth of the metaverse. That growth could create opportunities for a range of emerging and existing firms. However, picking individual winners and losers can be challenging in such a rapidly evolving space. That’s why investors may want to consider a basket of companies with an ETF that provides access to an array of metaverse innovators, instead of trying to pick individual names.

Enter the Metaverse with ProShares Metaverse ETF (VERS)

ProShares Metaverse ETF (VERS) gives investors access to the companies that are shaping the next frontier of digital interactions. Explore the opportunity.

 

1 JP Morgan, “Opportunities in the Metaverse,” 2022; Morgan Stanley, “Metaverse: More Evolutionary than Revolutionary,” February 2022

2 Emergen Research, “Metaverse in Manufacturing Market By Component,” January 2022 ; Forbes, “The Next Frontier For Healthcare: Augmented Reality, Virtual Reality, And The Metaverse,” November 2021

3 Unity Software 10-K, March 2022

4 Unity Software, March 2022

5 Unity Software, March 2022

6 Unity Software 10-K March 2022

7 Unity Software 10-K, March 2022

8 Global Newswire, “CEOs of Matterport, Liquid Avatar, Unity and ESE Entertainment Targeting Billion Dollar Market Opportunities and Explosive Revenue Growth in the Metaverse and Digital Entertainment,” February 2022

9 Wall Street Reporter, “Unity Software Inc. (NYSE: U) John Riccitiello, CEO: ‘Unity Will Be Major Player in Building the Metaverse’,” January 2022  

10 Matterport, March 2022

11 Yahoo Finance, “Metaverse is what ‘we’ve been about since the very beginning,’ Matterport CEO says,” March 2022

12 Yahoo Finance, “Metaverse is what ‘we’ve been about since the very beginning,’ Matterport CEO says,” March 2022

13 Matterport 10-K, March 2022

14 Matterport, March, 2022;  Barron’s, “This Stock Is a Pure-Play Bet on the Metaverse,” December 2021

15 Bloomberg, “U.S. Housing Market Gained Almost $10 Trillion During Pandemic,” January 2022; Financial Times, “The oldest asset class of all still dominates modern wealth,” November 2021

16 Matterport 10-K March 2022; Bloomberg Consensus Estimate on Revenue Growth, March 2022

17 Wall Street Reporter, “Matterport, Inc. (NASDAQ: MTTR) CEO Raymond Pittman: ‘Matterport Is Digitizing the Built World – Every Building in Every Country’,” January 2022; Global Newswire, “Matterport Announces Record Full Year 2021 Financial Results and More Than 500,000 Subscribers,” February 2022  

18 Earnings per share calculated as company’s profit divided by outstanding shares of its common stock

19 Matterport 10-K, March 2022

20 XR Today, “Vuzix, AMA Step Up Global AR Smart Glass Efforts,” December 2022

21 Vuzix, March 2022

22 PRNewswire, “Vuzix Completes Sale of Its Tactical Display Group for $8.5 Million Cash along with a $2.5 Million Earn-out,” June 2012

23 Mobile World Live, “Google adds Verizon BlueJeans to smart glasses,” January 2022

24 Vuzix 10-K, March 2022; Bloomberg Consensus Estimate on Revenue Growth, March 2022

25 Investor’s Business Daily, “Will 2022 Be The Year Of Augmented Reality Glasses?” January 2022

26 Global News Wire, “Global AR Glasses Market Is Poised to Reach US$883.4 Mn by 2025, at a Healthy CAGR of 17.8% During 2021-2025,” December 2021

 

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VERS

Metaverse ETF

Access the companies building and supporting the virtual and augmented worlds of the metaverse.

Get the latest perspectives and updates.

As of 4/25/2022, VERS included allocations of 4.42% to Meta Platforms, 2.90% to Unity Software Inc., 3.98% to Vuzix and 0.81% to Matterport. Holdings are subject to change. 

This is not intended to be investment advice. There is no guarantee forecasts will be met. Indexes are unmanaged and one cannot invest in an index.

Any forward-looking statements herein are based on expectations of ProShare Advisors LLC at this time. Whether or not actual results and developments will conform to ProShare Advisors LLC’s expectations and predictions, however, is subject to a number of risks and uncertainties, including general economic, market and business conditions; changes in laws or regulations or other actions made by governmental authorities or regulatory bodies; and other world economic and political developments. ProShare Advisors LLC undertakes no duty to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

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Investments in Metaverse technology are subject to risks associated with a developing industry and there is no guarantee that these companies will be successful. Metaverse companies may be subject to cyber-attacks, including but not limited to, unauthorized access to digital systems, data corruption, and service or operational disruption. Cyber-attacks can cause disruptions and impact business operations, potentially resulting in financial losses, the inability of Fund shareholders to transact business, violations of applicable privacy laws and other laws.

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