January 31st, 2022

Red Pill or Blue Pill?

Dear Rebel Investor,

“You take the blue pill – the story ends, you wake up in your bed and believe whatever you want to believe.

You take the red pill – you stay in wonderland and I show you how deep the rabbit-hole goes.”

Remember those lines from The Matrix?

They came from Morpheus (Laurence Fishburne), who delivered them to Neo (Keanu Reeves).

It was his way of giving Neo the choice of living in a fantasy land most people believed was real…

Or seeing the world as it really is.

Neo chose true reality, of course.

Now, 23 years after The Matrix was released, it feels like we’re living in a real-world version of that movie.

It seems to me like just about everyone has taken the blue pill.

Consider that most people are glued to their cell phones 24/7… addicted to social media… absorbed in video games…

Well, guess what?

Imaginary living is about to go into hyperdrive

We have the so-called metaverse to thank for that.

WTF is the metaverse?

That’s a really difficult question to answer.

Here’s a definition from venture capitalist Matthew Ball in a nine-part essay called The Metaverse Primer.

“The metaverse is a massively scaled and interoperable network of real-time rendered 3D virtual worlds (that) can be experienced synchronously and persistently by an effectively unlimited number of users with an individual sense of presence, and with continuity of data, such as identity, history, entitlements, objects, communications and payments.”

Say what?

Here’s my stab at helping you understand what the metaverse is

Essentially, the metaverse is a virtual universe in which 3D virtual worlds exist.

These worlds are shared places dedicated to work or play.

You can take part in these worlds through an avatar of yourself.

As an avatar, you “inhabit” these worlds.

And as an inhabitant of these worlds, you can have a completely different life and interact with other avatars, just like people interact with other people on Earth.

You can have digital social interactions…

Computer-generated gaming…

Host and attend virtual events…

The possibilities of what you can do in these worlds are as endless as your imagination.

Metaverse supporters say it will allow people to stay connected with friends through everything from virtual concerts to virtual trips around the world… and everything in between.

Curmudgeons like me say it’ll suck more people into cyberspace, to the detriment of us all.

But it doesn’t matter what anyone thinks about the metaverse.

There’s no stopping it – just like there was no stopping the Internet.

Here’s something else…

There’s real money to be made from the metaverse

Here’s an example of what I’m talking about.

There’s a virtual world called Decentraland.

One of the things you can do there is buy and sell virtual real estate using a cryptocurrency called Mana.

A few weeks ago, a metaverse real estate company – the Metaverse Group – bought 116 parcels of virtual land in Decentraland’s virtual fashion district for $2.43 million.

Yes, the purchase was done in MANA…

But the MANA was bought with real money by whoever was representing or owns the Metaverse Group.

Crazy, huh?

After all, what’s wackier than a pretend real estate company that exists on a pretend world buying pretend property for $2.43 million of real money.

But upon closer inspection that purchase may not have been so crazy.

See, the Metaverse Group plans to host virtual fashion shows on the virtual property they just bought.

And if you want to attend, you’ll have to cough up some MANA…

Which, of course, you must buy with real money.

The recipient of all that Mana is, of course, whoever in real life owns the Metaverse Group.

So who knows?

Maybe they’ll make a killing.

There are lots of other ways to make money in the metaverse.

Through your avatar, you can sell or rent virtual items… charge admission to virtual events… sell rights to virtual video games…

It’s important to understand that money used in the metaverse is cryptocurrency.

What kind of cryptocurrency?

That depends on the virtual world, as some only allow using cryptos.

Regardless, whatever cryptocurrency is used must be purchased with real money… and can presumably be exchanged for real money.

The popularity of the metaverse is exploding

According to Market Research Future, the global metaverse market was worth $21.91 billion in 2020.

And the firm said that market will grow by a whopping compound annual growth rate (CAGR) of 41.7% from 2021 to 2030.

We’re talking about a 1,525% increase to $356.12 billion if that comes to pass.

Bloomberg says the metaverse could be worth a lot more… and a lot sooner – about $800 billion by 2024.

That’s just two years from now.

And crypto asset manager Grayscale says it could soon be worth $1 trillion.

The potential of the metaverse has certainly gotten the attention of the big boys in tech.

Take Meta Platforms, Inc. (Nasdaq: FB), formerly known as Facebook.

Meta CEO Mark Zuckerberg has been going hog wild investing in gaming and virtual reality – two metaverse staples.

  • Meta Platforms Inc is buying Within (private), which is best known for its Supernatural workout app
  • It bought Unit 2 Games, which owns a game creation platform called Crayta
  • It acquired BigBox VR (private), which makes a popular game for Facebook’s Oculus VR goggles
  • And it now owns Downpour Interactive, another private VR game maker.

You can bet this is just the beginning of Zuckerberg’s spending spree to take full advantage of the skyrocketing popularity – and profit potential – of the metaverse.

In fact, he expects to lose $10 billion on VR- and gaming-related acquisitions just this year alone, and much more over the next several years .

But he’s confident his bet will pay off.

Other big tech companies are betting on the metaverse as well.

They include Alphabet, Inc. (aka Google: Nasdaq: GOOG), Nvidia (Nasdaq: NVDA), Unity Software (NYSE: U), Roblox (Nasdaq: Roblox), Autodesk (Nasdaq: ADSK), and Microsoft (Nasdaq: MSFT).

Investing in any of these companies could be profitable if the metaverse continues to explode in popularity (a virtual certainty… pun intended).

But most companies plowing money and resources into the metaverse are large caps.

(And you know how we feel about them here at Dear Retail.)

Are there any good small cap Metaverse plays?

I can think of one – Matterport (Nasdaq: MTTR).

Matterport is tiny compared to most of its tech competitors, with a market cap of about $3.2 billion.

It describes itself as a 3D spatial data technology company that’s focused on indexing the built world.

To that end, it approaches the metaverse from a variety of angles, including:

  • Digital twins, which can create a 3D digital copy of a real-world place or object
  • Matterport Capture, an application that captures depth, data and imagery of a space using 3D cameras, 360 cameras and iPhones
  • Matterport Workshop, an application to customize and add additional details
  • Matterport Showcase, an application for audiences to view and explore space in its final format
  • And Matterport VR, which allows you to experience virtual reality.

The bottom line is, despite its relatively small size, Matterport’s diverse VR-related offerings make it stand out from all the companies that could help grow the metaverse.

And if I could only have one metaverse-related stock in my portfolio, I’d choose Matterport.

But I don’t own it.

Nor do I own any other metaverse stock.

I just can’t see myself taking the blue pill.

Signing off,
Doug Fogel

Contributing Editor, Dear Retail Investors

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