The rest of the world is finally catching on to what Chief Analyst Stephen McBride’s been saying for nine months.
It only took a 60 Minutes special…
Facebook (FB) changing its name to Meta…
And dozens of the world’s most successful companies starting to experiment in the space...
But now, folks are waking up to the idea that the metaverse—the 3D, immersive internet Stephen first told us about in February—is not only real… it’s the biggest story in tech.
Just look at Google search trends for the term “metaverse:”
Source: Google
Still—there are a ton of unanswered questions about this exciting new world. And most of what you’ll find online will leave you even more confused.
So today, I’m sharing one of the early conversations I had with Stephen on the metaverse. What Stephen describes below is more relevant now than ever before… and he breaks it all down for you in plain English.
[Originally published April 26, 2021]
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Chris: Hey Stephen… We’ve been getting a lot of questions about the metaverse. Can you walk us through what exactly is happening here?
Stephen: The metaverse is a virtual, 3D world where you, through an avatar (like the movie Ready Player One), can socialize with other people, work, play, create, and basically exist.
It sounds unusual, I know… And it’s hard to envision what it’s going to ultimately become…
But here’s the thing: You asking me about the metaverse today is like someone asking about the internet in the ‘70s…
Back then, the internet didn’t exist. It was an experimental technology hiding in the bowels of a Stanford lab.
We knew about the protocols and tech behind the internet in the ‘70s… We knew about what makes the internet actually work. But we never could have imagined how we'd actually use the internet. No one predicted anything like Facebook, Google, Snapchat, or Amazon (AMZN).
Fast forward to today… Our lives revolve around the internet. It’s the reason life moved on over this past year while much of the physical world was effectively shut down. Heck, the internet is the only reason you and I even know each other. You’re in South Florida. I’m in Ireland. Thanks to the internet, we work together every day.
Chris: So this metaverse is basically the “next version” of the internet?
Stephen: Exactly. More specifically, it’s a 3D, immersive internet.
So today we go online and look at Facebook, YouTube, and Google. These are static webpages we see through our computer screens or phone screens. We use our mouse and touchpads to access them.
The metaverse is completely different. It’s an interactive internet.
And it’s important to understand that the metaverse isn’t just a virtual Disneyland or just a virtual Amazon Mall. It’s not one specific “world.” Instead, the metaverse is the infrastructure that will connect all these different worlds.
It’s similar to how the internet isn’t just Google or just Amazon. It’s a whole ecosystem where you can have Zoom (ZM) meetings and buy cryptocurrencies and watch YouTube videos.
Chris: So how will people access the metaverse?
Stephen: It’s going to be through computers… It’s going to be through video games… VR (virtual reality) and AR (augmented reality) headsets will be a big part of it.
So, for example, I could say, “Hey, Chris, want to catch this concert together after work?” And we would put on our headsets, and be launched into the metaverse, watching the same artist perform on the same stage, live. But we’d be watching virtually.
Chris: Wow... and this technology already exists?
Stephen: Yes, and it’s improving rapidly. Last year, 12.3 million people watched hip-hop artist Travis Scott’s concert live in the hit game Fortnite. That’s about as many people as the average Monday Night Football audience.
But it’s not just concerts, Chris…
Kevin Péloquin is a history teacher who had planned a class trip to Greece last year. COVID-19 scrapped his plans, but Péloquin had an idea. What if the class could explore Greece as it was thousands of years ago?
Assassin’s Creed is a video game series centered on pivotal times in history. A few years back, designer Ubisoft added an educational mode to the game. In short, it allows players to roam freely around famous historical sites. You can even chat with the locals about daily life.
Ubisoft granted Péloquin’s students free access to this tool. Instead of flicking through boring pictures of ruins, they were able to travel back in time and “visit” Ancient Greece:
Source: Ubisoft
Here’s another example. Berkeley students couldn’t have a normal graduation last year. So, they recreated the entire campus and held a commencement in the hit game Minecraft. It went on like a normal ceremony. The speaker was invited to the stage to give a speech. When the time came to hand out diplomas, graduates walked up to the stage, like this:
Source: UC Berkeley
The overarching theme here is more and more of the real world is shifting over to the virtual metaverse.
Chris: What do you say to those who’d call this just a fad?
Stephen: If you look at the past 40 years, more and more of our life has become virtual. And this trend is only accelerating.
You could fight it—or you can accept it, embrace it, and learn how to make money from it.
Already, many people earn their living through the internet and virtual existences. Whether that’s building games and earning money from them, or performing in TikTok videos… Snapchat is paying some influencers $1 million per post!
History shows you’re much better off embracing transformational technologies. And there are mountains of evidence that the “virtualization of everything” is just in its infancy...
Did you see that a digital piece of art, basically a screenshot, just sold for $69 million? It’s part of the booming non-fungible token (NFT) market, which we’ll have to discuss in detail another day.
My point is... someone paid $69 million dollars for a piece of “art” that doesn't physically exist!
And have you heard of Decentraland? It’s a virtual platform where you can create, explore, trade, and even buy and own land in a virtual world. Just two weeks ago, a patch of virtual “land” sold on the platform for $572,000.
Chris: So who are the key players working on the metaverse?
Stephen: The CEO of Nvidia is actively working to create a metaverse future. He partnered with BMW to create a digital twin factory in Germany. They use it to plan out new workflows before deploying changes in real life.
Epic Games, which is the maker of Fortnite, just raised a billion dollars to put towards building the metaverse. Investors include Sony (SONY) and others.
You also want to look at Epic’s MetaHuman Creator, which is creating highly realistic digital humans.
Chris, these people look so real it’s almost scary. I encourage everyone to watch this short video here.
Source: Epic Games
A lot of people assume there will be a bunch of cartoon, “toy-like” figures walking around in the metaverse. It will certainly start out that way. But eventually, you’ll be able to create yourself exactly how you look right now, to live in the virtual world.
The gap between virtual reality and reality is closing at a very fast pace. In five years or so, most things in the metaverse will be indistinguishable from reality.
Chris: Well, we’ve covered a lot of ground here today. Thanks, Stephen.
Before you go… how can readers profit off the metaverse?
Stephen: My top metaverse pick owns the world’s most successful game engine. This disruptor is the first choice for companies launching into the metaverse.
This company is the builder that will help firms “break ground” on their digital existence. Disney (DIS) already uses this disruptor to create new worlds and virtual characters.
The 10 largest carmakers use this disruptor, too. So do many of the world’s largest engineering and design firms like Skanska and Nike (NKE).
I detail this stock, and two others I believe will thrive during what I’m calling the “Millennial Melt-Up,” in this briefing.
Chris Reilly
Executive Editor, RiskHedge
Monday mailbag
Is Stephen wrong about iBuying?
We’re getting a lot of feedback from his recent essay on Zillow’s $300 million iBuying flop.
But Zillow’s (ZG) failure, as Stephen explained, doesn’t mean iBuying is done. In fact, he says it’s a great opportunity…
Here’s what RiskHedge readers are saying… Let me know what you think at chrisreilly@riskhedge.com.
Good friend in east Dallas (a healthy part of the city) used Opendoor (OPEN) when his neighbor, a realtor, confirmed the offer price was realistic and all the headaches of a conventional sale were removed. —Bill
Don't know anything about this business, but do know one thing: they offer lowball prices relative to the local market. They do this so they can make a profit, at my expense (or because I need to sell quickly). My realtor is a great source of market information who has helped us maximize the amount of profit out of our last two home sales, even after paying them a 5% commission.
iBuying may grow, but it won't be at the expense of savvy owners. I know nothing about the process of iBuying, but did get a quote that was laughable from my perspective. Just an anecdote from the front lines. —Rex
Opendoor will eventually fail as well. Everything works in an up market. iBuying makes no sense in a down market. Just wait. —Andy
Regarding OPEN, here are a few numbers from recent sales in my neighborhood. My neighborhood has similar houses, 63 in total arranged on four cul-de-sacs...
Zillow bought a house here on 4/30 for $196 sq/ft, selling it on 9/15 for $199 sq/ft, pricing that appears to me to be consistent with their failure/exit from flipping... Opendoor bought a house here 2 weeks ago for $208, painted the outside and replaced the carpeting, and now it's for sale at $228. They are paying 14.5% more per sq/ft now compared to the $199 paid two months ago on 9/15 for the Zillow home.
I would love it if my home had appreciated 14.5% in two months, but it hasn't and this scenario makes me wonder if Opendoor is also starting to overpay...
My second, major concern with Opendoor is its claim to be able to price correctly in either rising or falling markets... I think Joe Homeowner is apt to have an unrealistically high price in mind for his home value in a falling market, which will result in far fewer “deals” for Opendoor to close.
You mentioned Tesla (TSLA), and I wonder how sophisticated a Tesla buyer is compared to Joe Homeowner... I see a pretty large gap there, which would also tend to limit iBuying for at least several years to come... in my opinion. —Mark
