Facebook – The early edge.

In the metaverse, Facebook has a head start.

• The release of an app by Netflix for the Oculus Quest will go almost unnoticed but it is highly significant because Netflix will be a contender in the metaverse when it comes, and it is indicating which player it currently thinks is in the lead.
• Netflix has released a game called Eden Unearthed on App Lab for the Oculus Quest hardware which is clearly related to its animated series, Eden.
• The reason that this is important is that the metaverse is the leading contender to replace the smartphone at the centre of the digital world.
• The metaverse is generally understood as the virtual 3D world that a user inhabits when he dons a virtual reality helmet or the digital world that is merged with reality in augmented reality.
• Currently, the technology is far from what would be considered ready to take the crown from the smartphone, but it is the leading contender as and when these criteria are met.
• Just like colour screens in 2001 or smartphones in 2007, this represents a dislocation point at which market leadership is up for grabs and where it often changes hands.
• In 2007, it was Apple & Google that took over from Nokia and as things stand today, I am dubious as to whether Apple has the current management strength to persevere through such a change.
• Hence, the shift of consumer focus away from smartphones and onto another device represents the biggest opportunity in 15 years for someone to steal Apple’s crown.
• In order to do that, the contender will have to have a metaverse offering that offers services that cater to the use case of the device being used, do it to a high level of quality, and attract a large number of users.
• At the moment, and it is very early, that leader is undeniably Facebook which is seeing real traction with its Oculus Quest 2 product that was launched late last year.
• It is still a very long to go from leadership in a tiny niche to global world dominance and early leaders often fall by the wayside, but this is the one to watch at the moment.
• Netflix will be contending in this space and so its choice to develop for Oculus is a significant one.
• I have no idea when this is going to become a reality and it could be many years, but Facebook has the early advantage.
• That being said, I am not a huge fan of the FAANG names as they are over-owned and generally being used as a parking place as a result of the negative yields being offered by the bond market.
• Hence, when the taper comes and yields rise, these names could suffer as capital relocates back to its traditional home and valuations normalise.
• Hence, I remain pretty neutral on Facebook as it’s much too early to price the metaverse into any form of fundamental performance.