The Metaverse Opportunity: Today and Tomorrow

STRATEGY Thematic
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The metaverse is here. Today, it’s primarily associated with immersive gaming, social media, and live entertainment events such as virtual concerts. But there are plenty of lower-profile, pioneering developments elsewhere: Healthcare companies are deploying immersive technology for research and patient care. Retailers are creating innovative options that allow consumers to try on virtual clothes or visualize what a new couch might look like in their home. Advertisers are selling space on virtual billboards and creating immersive experiences for some of the world’s largest brands.

Already, according to Bloomberg, there was a metaverse “economy” of over $500 billion in 2021—and this is projected to grow to over $800 billion by 2024.1 And the opportunity has the potential to become exponentially larger as the metaverse matures. That’s why a thoughtful investing approach should capture the metaverse opportunity of today—while anticipating where the metaverse may go tomorrow.

Today’s metaverse shapers: Creating immersive, virtual worlds

Today, there’s a broad array of companies shaping the future of the metaverse, spanning traditional industries (like device manufacturers and data processors), major innovations (like computer visualization and virtual reality players), and big ideas (like the development of new social media platforms as well as interchange and interoperability standards). The table below shows the range of subthemes within the Solactive Metaverse Theme Index (along with examples of specific companies in each). The diversity of innovators in this space may be an opportunity for investors.  

Solactive Metaverse Theme Index: A range of subthemes

Segment

Description

Company Example

Metaverse Technology

Companies that are involved in the provision of technologies, infrastructure, or hardware used to develop or operate in the metaverse, including technologies for virtual and augmented reality.

NVIDIA

Designs, develops, and markets three-dimensional graphics processing units (GPUs) and related software.

Metaverse Platforms

Companies engaged in the provision and development of a non-physical, virtual environment or digital world where users and businesses can interact through various kinds of  virtual technologies. This includes platforms and services that facilitate virtual marketplaces and social network platforms.

Roblox

Operates a human co-experience platform where users interact with each other to explore and develop immersive, user-generated 3D experiences.

Metaverse Devices

Companies that are involved in the provision of devices used to access     or interact with the metaverse. This includes the production of wearable devices and specialized visuals and audio or gaming equipment used for interacting in virtual and augmented reality.

MicroVision

Develops sensing technologies that can be used for augmented reality, interactive displays, and consumer lidars. These technologies are a key enabler for the immersive experience expected in the metaverse.

Interchange Standards

Companies engaged in the development and distribution of tools, formats, services, and engines that facilitate the creation of the metaverse by setting actual or de facto standards for interoperability.

Unity

Creates professional development tools used to build immersive structures within the metaverse. Unity is not a coding language but a robust set of pre-built modules that serve as building blocks to produce graphics and animation, and which have the flexibility to operate across devices.

Data Processing

Companies involved in providing computing power to support the metaverse. This includes high-intensity data processing services such as rendering, data matching and synchronization, or motion capturing.

Agora 

Provides a real-time engagement platform-as-a-service allowing developers to embed real-time video and voice functionalities into their applications. The enablement of developers to build with real-time video and voice functionalities will be a key data processing technology to build the metaverse.

 

Tomorrow’s metaverse shapers: Connecting immersive, virtual worlds

Of course, an even bigger opportunity lies in the metaverse of tomorrow. Many of today’s metaverse pioneers offer immersive experiences that are separate from one another—for example, your persona (avatars, skins, etc.) in one game does not follow through to other games or the virtual concert you’re about to attend. Tomorrow, your identity, and even your virtual assets, will likely be yours from game to game, concert to concert, and, perhaps more importantly, a broader range of emerging commercial opportunities. As a result, we may soon see a transition from centrally owned, discrete metaverse environments to interconnected but decentralized ones. This will expand the metaverse experience and will also open sizable new opportunities for revenue—such as the sale of virtual real estate and virtual goods.

Of note, even in today’s environment of limited connectivity and interoperability, JP Morgan estimates a current annual run-rate of $54B on virtual goods.2 Now consider the not-too-distant future: What would someone pay for virtual sneakers that could be worn anywhere in the virtual world? What would virtual prime real estate be worth if it attracted virtual “foot traffic” in an exponentially growing sprawl? And who profits?

The future of metaverse investing:

A diversified strategy around the idea  

The trouble with investing in a long-term, transformational idea like the metaverse is that even if you are directionally right, it is challenging to pick winners and losers: They are determined as technologies are established and then mature. Some transformative technologies are evolutionary and leverage the scale and existing capital investments of incumbents, while others are revolutionary and decimate the value of those existing investments. Consider Clayton Christensen’s widely read “The Innovators Dilemma,” which noted that it is often hard for incumbent industry players to take advantage of new opportunities presenting an opportunity to new entrants. Despite this, Microsoft and Apple emerged from the early days of the PC to be huge web 2.0 successes.

Today’s centrally owned and not-so-connected metaverse has some familiar industry dynamics. The MAANGs (formerly FAANGs) were born of previous eras but are leveraging their legacy footprints and scale across all metaverse segments.3 The proto-metaverse gaming industry—which is still a dominant piece of today’s metaverse pie—birthed such successes as Roblox and Unity, whose intellectual property may be valuable well beyond gaming.

The metaverse’s progression seems to be a blend of evolution and revolution. Evolutionary elements, regardless of the era they were birthed in, must be a component of a metaverse investment strategy. But there are revolutionary aspects: The notion that the interconnected metaverse of tomorrow will be a decentralized one could limit the importance of scale in many parts of the metaverse. Cryptocurrency is already in use in the metaverse, but blockchain may more broadly support not just decentralized business models, but also challenge the value of legacy investments.

In the early 1900s there were roughly 3,000 car manufacturers in the United States. By the 1930s there were fewer than 50.4 While it would be nice to have a crystal ball, at this stage of development, the most prudent metaverse investment strategy requires exposure to a wide range of firms, across a range of segments, with a diversity of core competencies and physical and intangible investments.

ProShares Metaverse ETF

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

Bloomberg, “Bloomberg Intelligencer: Metaverse may be $800 billion market, next tech platform,December 1, 2021

JP Morgan, “Opportunities in the metaverse How businesses can explore the metaverse and navigate the hype vs. reality,” January 2022

MAANG stocks, formerly known as FAANG stocks, are Meta Platforms (formerly known as Facebook), Amazon, Apple, Netflix, and Google. 

4AnswerstoAll.com

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VERS

Metaverse ETF

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

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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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This fund concentrates its investments in certain sectors. Narrowly focused investments typically exhibit higher volatility. Diversification may not protect against market risk.

This fund may be subject to additional risks associated with the semiconductor, software, media and entertainment, and retailing industries. A more complete discussion of risks is found in the prospectus.

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