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How to think about investing in Facebook's Metaverse

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Yahoo Finance’s Brian Sozzi and Julie Hyman break down Facebook's rebranding, the state of big tech, and market outlook with Anastasia Amoroso, iCapital Network Chief Investment Strategist.

Video Transcript

JULIE HYMAN: Let's talk about another tech giant and the move that it made yesterday. Facebook renaming itself or its corporate parent, at least, Meta to talk about and sort of signal its intentions in the so-called metaverse. Anastasia Amoroso is with us now, iCapital Network chief investment strategist. And Anastasia just wrote about the metaverse and the sort of investable opportunities on the metaverse. Anastasia, what do you think this Facebook move does for that world and those kinds of investments? Or does it increase skepticism almost counterintuitively?

ANASTASIA AMOROSO: Well, Julie, it certainly puts a lot of spotlight on the metaverse. This is probably going to end up being one of the most talked about things for 2021. But the key point here is that Facebook is not going to own the metaverse. And there's not going to be one metaverse, there's going to be several outlets where we develop these digital spaces where people can gather. They're going to be using these digital avatars. They're going to engage socially. And they're actually going to share certain experiences.

And in a way, Facebook is actually a latecomer when it comes to the metaverse. Because if you think about some of the video game companies, whether it's Roblox or a private company, Epic Games, or some others, they have already been building out their versions of the Metaverse where the gamers come. And more and more, they're not just coming for gaming but they're actually coming to share something like a live concert with their friends.

And so when you think about the captive audience that some of these video gaming companies have, it's close to $3 billion people worldwide that subscribe to a video gaming platform. Which by the way kind of blows your mind. 3 billion people. I think there's just over 5 billion adults in the world, so that's more than half of the population that's already captured here.

So I think that's what Facebook ultimately saw. And they wanted to seize on that opportunity set as well. But once again, it's not going to be one metaverse, but it's going to be several. And there's a lot of investable opportunities as we build out this ecosystem.

BRIAN SOZZI: Well, is this metaverse likely to be so large that at current levels, big cap tech names, they're undervalued?

ANASTASIA AMOROSO: You know, one of the things that big tech companies have been doing is they have been actively investing and acquiring some of the smaller players. And so I do like that because they clearly have to revamp what their future pipeline looks like. So Brian, you're right, if you look at the valuations of the big tech, we used to call the Fang complex, but if you look at the valuation of that, it is actually back to the pre-March 2020 low. So it is kind of fairly priced.

But I will say. I think there's more interesting ways to invest in something like the metaverse. When you look at the entire ecosystem, again, it's not just going to be Facebook but it's going to be several other digital worlds, whether it's video games, whether it's decentralized applications that are built on blockchain like Decentraland that's doing this. So there's going to be several digital worlds you can invest in. There's going to be digital avatar companies that are also racing to be a part of this. There's a hardware interface and who's going to win that game.

So when I look at the entirety of the ecosystem, what we see is that a lot of venture capital, a lot of private equity capital is going into this space to fund this ecosystem. And there's over 4,000 private companies that are trying to win this race as well. So that's where I would be focused, maybe alongside some of the big tech names.

JULIE HYMAN: You know, it's interesting to me, Anastasia, also when we talk about-- my team is probably tired of hearing me talk about it by now, but there's a company called Matterport that does 3D renderings of real estate that's for sale. So you can tour a house, for example, using that, which is also sort of metaverse without you needing a headset. And the car companies are creating these virtual reality models.

You know, we've heard about virtual reality in the past, it's been rebranded the metaverse now, but It's still-- I mean, it's virtual reality and augmented reality. Like, why is this time going to be different? We are, yes, already seeing some examples of this, but it hasn't gone broader in previous iterations. Is it just the tech is further along now?

ANASTASIA AMOROSO: Julie, I'm glad you brought it up. But I think that's a really big part of it. This tech is much further along because virtual reality, augmented reality was just not ready for primetime. And even now, if you look at some of the avatars that are being developed to make the work collaboration, they're just not quite there yet.

But with the advances in GPU semiconductors and the faster connectivity that we have, we have a whole slew of technology that is coming together to make sure that we don't have the latency with augmented reality, and to make sure that we have the right processing power. So I think you're right, a lot of it is technology. We've always thought that the primetime, the point of acceleration for augmented reality is really going to be around 2022, 2023. And here we are.

And I'm glad you brought up other sectors not gaming related because that's another really big story. It's the corporations, it's the companies across the industry verticals that are looking to deploy augmented reality. For example, if you look across all the verticals pre-pandemic, about 77% of them were investing in augmented reality. Today, that 7% rose to 30% of the companies across the verticals are wanting to make investments there. And it's auto, it's consumer industries, and, of course, there's media and communications that are leading the way here.

But this is where a lot of the corporate spend is going to be going. And when I look across the opportunities said, augmented reality, virtual reality is likely to have the highest CAGR of 30% versus something like internet advertising that's going to be growing at 8%. So technology is there and I think we are ready for primetime when it comes to augmented reality.

BRIAN SOZZI: Well, let me eject us from the metaverse, Anastasia, for a second. Go back to those--

ANASTASIA AMOROSO: Thank you for that.

BRIAN SOZZI: --Apple and Amazon-- Yeah, here to help. Those Apple and Amazon reports really not good. Markets under pressure because them. Are those are the two types of reports that should be a wake up call to investors that it's not all fine out there in supply chain land? It's not all fine out there in economic growth land? There are concerns and they're not priced into stocks here.

ANASTASIA AMOROSO: Well, it's definitely not all fine in the supply chain land. But is that anything new to the stock market? Is that something that we didn't actually know? I'm of the opinion that we are seeing peak supply challenge issues as we speak or maybe we've even already seen that. And so what you're getting now is you're getting those lag reports of what occurred in the third quarter.

But as I look into the fourth quarter, I do think that some of the supply chain issues and the bottlenecks should ease a little bit. And it's going to take a few quarters, but we should start the beginning of that trend. The reason I say that if we look at the pricing for container ships, for example, that pricing is starting to come down. And we're now in week five or six of sequentially lower container ship pricing. So that's a positive development.

If we look at trucking employment, which has been another factor that's really been creating the bottleneck here, that too is picking up. More and more truck drivers are coming back to their jobs. They're getting paid for it. The wage increases are running at 6% in the trucking and transportation sector. And that's what it's going to take to bring people back to work.

And then last but not least, if you look to Asia, that's a big part of the reason why we can't get certain toys for kids in time for Christmas, because you've got factory shutdowns in Malaysia, and Thailand, and Vietnam. But cases there are falling, so I think we will start to see some of those factors reopen too. So what we're seeing from the supply chain, from Apple, from Amazon. I think, are those lagged effects of Q3. But if you look at the demand side, it's not destroyed, it's just being postponed.