Big-name tech earnings are the center of attention this week, and investors are keeping a close eye on Meta (previously known as Facebook) for signs of where the company is heading with the highly-anticipated ‘Metaverse’. The Metaverse concept gained considerable attention during the Covid-19 pandemic as the world seemed like a perfect scape for people to escape the harsh reality of lockdowns. However, with the majority of the global population now back to enjoying non-Covid life, there are growing concerns that the Metaverse may end up being a flop.
This pressing question has left investors eager for answers, and some analysts have noted that the Metaverse is gradually losing focus within the company. Consequently, formulating a strategy for investing in Meta has become increasingly tricky, especially given the high seasonal expectations it carries. Seasonally, Meta has gained 100% of the time between April 24 and July 25 over the last decade. This impressive track record means that the bar is set very high for earnings release, which raises the question of whether a disappointing earnings release would present a valuable opportunity for buying at a dip.
Understanding the Metaverse
The term ‘Metaverse’ was first coined by author Neal Stephenson in his 1992 science fiction novel Snow Crash, and it essentially refers to a collective virtual shared space, created by the convergence of virtually enhanced physical reality and physically persistent virtual space. In simpler terms, the Metaverse allows users to interact with a computer-generated environment and other users in real-time, ensuring that they feel like they’re truly in the scene.
The most popular example of a metaverse-like environment is the online gaming platform Roblox, which has gained massive popularity among younger generations. Other examples include virtual reality games like VR Chat and Rec Room. In recent years, companies like Meta, Microsoft, and Epic Games have made significant investments to create their own iterations of the Metaverse, fueling anticipation among investors.
The decline in Metaverse Hype
At its peak, the promise of the Metaverse attracted billions in investments and formed the basis of numerous ambitious projects within the tech industry. However, now that the majority of the world’s population has returned to a semblance of normal life, interest in the Metaverse has waned. Some analysts have even claimed that it’s getting less and less focus from major companies, including Meta itself.
This decline in interest and attention may be explained by various factors, including the gradual reopening of economies, the shifting of priorities for companies, and the realization that creating a truly immersive and functional Metaverse may still be years away from fruition. As a result, investors’ original excitement has slowly dimmed, triggering uncertainty in the potential of the Metaverse stocks.
Major Trade Risks
As with any investment, there are inherent risks involved in trading Metaverse stocks. Firstly, the possibility of worse-than-expected earnings could significantly impact stock price, and the prospect of the Federal Reserve adopting a more hawkish stance might lead to a prolonged downturn in tech stocks more broadly. Additionally, the Metaverse itself is still a developing concept, which means that its overall feasibility remains uncertain.
Moreover, the Metaverse encompasses not just virtual reality, but also augmented reality, blockchain technology, and artificial intelligence – all emerging fields that carry their own unique sets of challenges and risks. As larger companies in the tech arena start investing significantly into building their own Metaverse, the competitive landscape may become increasingly more saturated, subjecting stocks to unpredictable fluctuations in dynamic markets.
Despite the decline in the hype surrounding the Metaverse, it’s crucial to remember that its potential is still vast, and it’s far too early to denounce it as a flop. However, for investors looking to put their money into Meta or other related stocks, it’s important to be cognizant of the risks involved and make well-informed decisions based on comprehensive insights.
This week’s earnings release may provide some valuable indicators concerning the future of Meta’s Metaverse endeavors, and watching the market closely could reveal new opportunities for both long-term and short-term investors alike.