Is the metaverse dead? And what does this mean for metaverse stocks and ETFs?

3 years since Mark Zuckerberg famously rebranded Facebook as ‘Meta Platforms’, it seems the metaverse is all but dead. Just look at Betashares’ decision to shut down the Metaverse ETF barely 2 years after it launched.

The metaverse ETF is being shut down

The irony is, this one was actually one of its top performers with a 40% gain. But the company does not see a future in this fund.

‘We decided to close a small number of funds where we concluded that investor take-up was going to remain limited, despite the strong take-up of our investment strategies overall’, a spokesperson told the AFR. A far cry from 2 years ago when it first launched the ETF.

Source: Betashares

We’re not going to estimate how big it is now, but we think it is fair to say it hasn’t reached ‘hundreds of billions of dollars’ if Betashares is shutting it down. To be fair to Betashares, this was an estimate by Bloomberg Intelligence and just one of many out there. The leaflet also outlined a prediction by Citi that predicted 1bn users by 2030 with a TAM of US$1-2tn. Still time for that…we suppose.

You may ask why this has done so well with a ~40% return. We would point out that it invested in companies in the ‘Bloomberg Metaverse Select Index’. Some of these had exposure, but it wasn’t their ‘be all and end all’.

One company was Nvidia which is neck and neck with Apple as the largest company in the world. Obviously GPUs will be important for the metaverse if it ever takes off, but it has purposes anyway, like in gaming and semiconductors. Meta itself has Facebook, Instagram and WhatsApp – valuable businesses in their own right. Can you believe Zuckerberg bought Instagram for just US$1bn back in 2010? Now that is a business worth several times more than that.

Is the metaverse dead?

No it isn’t. But we think the pipe dream of it being as big as the Internet is dead…at least for now. Even if you want to argue it could happen in years from now, you could just be right in the end…but not for a while.

Meta Platforms itself has not given up. For a start it has kept its name – we guess however it’d be an embarrassing U-Turn to change it back or to something else. It has continued to invest capex into metaverse-related technologies. Investors are expecting $37-40bn capex for CY24. Only last week, it told investors it was releasing an AI model called Meta Motive which could control the movements of a human-like digital agent, with potential to enhance the experience. It has also been releasing many of its AI models for free use by developers.

In our view, it will be a lot more complicated and take a lot longer for the metaverse to be ‘as widespread as the Internet’ as long as it remains used with VR head-mounted displays. Believe us or not, there were computers before the Internet – the Internet took off so fast because it could be used on devices that people already had. Even when VR systems are adapted, there is a lot of work to do to bring them up to speed to work as easily as computers do. Maybe some limitations may not be able to be overcome, like the arm and shoulder fatigue that can occur.

Can you see where we’re going with all this? If the metaverse was several hundreds of billions of dollars by now, Australia’s most prominent ETF provider wouldn’t be shutting it down. Whether or not it will ever take off…the jury is still out. But there is a lot of work to do before the limitations to widespread adoption can be overcome.

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