Meta, the metaverse and meta-fiasco! What does the future look like for the virtual reality and tech sectors?

The constant drop in stock-market value and share price for Meta (Facebook) has led our experts to question the future of the virtual universe, which, until recently, seemed bound for unequalled success. If you also consider the recent massive layoffs in the tech sectors… we can say that Silicon Valley is being shaken up. Sébastien Mc Mahon and our guest expert Jean-Pierre Chevalier assess the situation.

Ashleay: Welcome to iA Financial Group's “In Your Interest!” podcast, where we discuss the most important economic news and its impact on your finances. Meta’s stock drop is the talk of the town and the buzz of Silicon Valley. What does it all mean? Will we soon be living in a video game? Today for the podcast, we have in studio, Jean-Pierre Chevalier, Senior Director, Portfolio Manager, U.S. Equities and Thematic Investments, as well as Sébastien Mc Mahon, our Chief Strategist and Senior Economist at iA Financial Group. Hi, Sébastien. Hi, Jean-Pierre.

Jean-Pierre: Hi, Ashleay.

Sébastien: Hi Ashleay. All right. So, it's good to have Jean-Pierre with us today. I mean, we've been working together for close to ten years now. All right, and you’re Portfolio Manager for U.S. Equities. But, you know, you manage the thematic fund, so can you just give everyone an idea of thematic investing, what that is?

Jean-Pierre: Sure. Well, thematic investing, as it says, it's really to identify structural growth opportunities revolving around specific themes. So, we have identified many, actually over 40 innovation themes that we invest around. One of them revolves around the Internet, and now we're going to talk about the metaverse. So, we’re well versed without “wordplaying”.

Sébastien: Yeah. And it's you know, I remember that we were discussing a few years ago how, you know, the Internet revolution of, well, let's say the social impact of YouTube and all of that made you invest in stocks like makeup companies because of the change in the habits of the young people. So, you know, linking the economy with the social impact to make investment decisions, that's kind of what you do.

Jean-Pierre: Yeah. , find the direct way and the indirect way to benefit. So, whether it is through behavioral change, like you just alluded to with Estée Lauder, that makeup company, where people change their habits with the usage of social media or investing directly with big tech companies or other stuff.

Sébastien: Okay, good. So, now metaverse.

Ashleay: Yeah. So, J.P. we've been hearing a lot about this new theme in the past few years, the metaverse. But what is it? Because the gamer in me can only think of video games.

Jean-Pierre: Well, you're right, you're right. Actually, right now the biggest metaverse that exists because metaverse, it's among us. It's still, it's here today. The biggest example today are video games, whether we’re thinking about Fortnite or thinking about Roblox, more for the younger generation, or even many years ago, World of Warcraft was a big metaverse. So, it's really a concept where you have this digital universe with people either playing games, interacting, doing micro-transactions or having kind of their own economy. So yeah, that's in a nutshell what is a metaverse.

Sébastien: But we, now we see that people can start to make a living in the metaverse, right?

Jean-Pierre: So, it's really, we have to think about the metaverse as the, I would say, the natural evolution of the Internet. So, the Internet today has evolved into this thing where many people have, do economic activity on the Internet and live from that. So, the same thing is going to happen with the metaverse. People will find, you know, interesting applications, something to offer value propositions to other users and make a living out of it. It's already starting. If you just, to come back to video games, it used to be you buy the video game 60 bucks and you play. Now, sometimes you have access for free and you have to pay micro-transactions, quite often to other users that are selling you items or other stuff.

Sébastien: Yeah, I know that my daughters have spent a lot of money on Roblox to pay for like fashion items for their characters. So, it's kind of, as you said, it's an evolution of the real-world economic model, but that you can extend into the digital world.

Ashleay: And will this eventually have an impact on our actual economy?

Jean-Pierre: Sure. I think the best way—and let me come back to this—is really to see that in the framework of the evolution of the Internet. So Internet, in the nineties, the PC arrived and people start to sign on to the Internet. And then the mobile phone, iPhone, came in 2007. And now today, the Internet is looking to continue to adopt I should say technological development to make it something new. So, we're talking about metaverse, but the reality is we don't know exactly what form it will take. It's going to be very interesting to see going forward, I would say, how the Internet GDP is going to continue to take share of the overall economy

Sébastien: Right now, if you're not, you know, someone who's well-versed in technology, something that's still elusive. So, does it mean that the metaverse is not a big thing yet?

Jean-Pierre: It's a big thing like Ashleay, I mean, she's experiencing it every day in the, maybe not every day, but every now and then into video games and that kind of stuff. But I think it's going to it's going to evolve into something else. There's going to be what we call a killer app. So, again, to come back, in the nineties with PC, it was the email; that was the killer app. iPhone: The first year wasn't a big commercial success. It's only when you had some crazy games like Angry Birds that came in. It's funny enough when you, looking back, this is the killer app that propelled the adoption of smartphones. So, what would it be for metaverse? We don't know yet. It could be something that goes along with artificial intelligence or maybe blockchain technology. We don't know yet. We've got to keep an open mind. But everything is aligned for a killer app to emerge that will propel the adoption to a next level.

Sébastien: So, it's not necessarily, you know, someone living in a small apartment, but with the headset and the joysticks; you just live your life in the meta universe. It’s just, I mean, at some point it could be integrated with our day-to-day lives.

Jean-Pierre: Definitely. Definitely. Especially from a professional standpoint. I mean, there's definitely huge potential there, whether it be just for training purposes, thinking about the health care system, surgeons basically training in a metaverse environment, doing surgery. We could have tons of examples like this. Just think about for engineers or architects that can, now we do computer-“assist” design. Now we can do computer-“assist” 3D design within the metaverse.

Ashleay: Right.

Jean-Pierre: And if I may, ultimately a lot of people talking about this concept of mirror world. So, everything in the world, whatever it is, a building or a machine in a factory will have its digital twin. So, with that digital twin you can experience, you can run simulation, you can do tons of stuff.

Ashleay: Very interesting. I love it. And could you give us a few examples of who the main players are right now in the metaverse, well-known companies that are at the center of it?

Jean-Pierre: Sure. We already chat a bit about those video gamers companies. So, many environments exist out there. We talk about Roblox, Fortnite, GTA is another one. Obviously, the big tech company right now, we're hearing a lot about Facebook, which has actually changed its name to Meta to signal the change in strategy there. But keep an eye on Apple. I think next year or in the next 24 months, Apple will come with its own version of a digital world, along with a device.

Ashleay: Right.

Jean-Pierre: They’re already well positioned with smartphones, so they could make a lot of noise. There are some other players out there, more adopting true blockchain technology. So. the more, let's say, some people might know the Sandbox and the Decentraland projects. So, without going into detail, it's kind of the two visions that are facing off right now with metaverse.

Ashleay: I see.

Sébastien: Okay. And you know, we're hearing a lot about the Meta or Facebook stock price that fell a lot this year. And this is a question we get asked all the time. Does that mean that, you know, the metaverse is off to a rough start or is there something else going on? Thus, we thought, let's invite the expert to discuss that. So, if someone is invested in Meta or Facebook or wants to invest in the metaverse, is it still a good idea? Is Meta still the place to be?

Jean-Pierre: I think the key word to answer that question is uncertainty right now, because as we've discussed, the metaverse is still immature.

Ashleay: Right.

Jean-Pierre: But Facebook, as a company, decided to signal to the market that it's going to be their future. So, they basically said we're going to invest tons, billions of “money”, but the outcome is uncertain in terms of revenue. So, the market doesn't like that, obviously. It won't be a big problem if the base business wasn’t falling off a cliff. And that's what's happening right now. There's some structural change with app-tracking transparency from Apple, related to digital advertising. Meta lost about $20 billion of revenue just on that. There's also competition. I mean TikTok; a lot of people using TikTok. So, that is forcing Meta to change its feed from a user-generated to more of an “algorithmic”-generated content. Right now, this type of content is monetized at a lower level than what the, than the traditional stories or the traditional feed. So, Facebook has to fight kind of this problem with the base business where about more than $20 billion revenue disappeared almost overnight, I would say, in the span of 12 months, while at the same time signalling a huge strategic pivot with an uncertain outcome. So, is it a good time? The answer is we don't know. Where there’s uncertainty, there could be big opportunity. I remember when I started in the business, early 2000s, Apple stock was down about 80% because we thought that smartphone adoption was going to be mature, going to be the end of it. Obviously, they continue to thrive; they adjusted their strategy. But right now, there's a high level of uncertainty regarding Meta.

Sébastien: So, that's interesting. We know that at some point is going to be huge. It's going to be everywhere. We don't know when. We don't know in what shape. We don't know who's going to be shaping that. So, very interesting thing to follow. Thank you for joining us today.

Ashleay: Absolutely. Thank you, Jean-Pierre, so much. And thank you, Sébastien, as well. Amazing to speak with both of you. Please don't be shy to share our podcast if you enjoyed it. Love this podcast? Want to know more about economic news? Follow our “In Your Interest!” podcast available on all platforms, visit the economic news page on ia.ca, or follow us on social media.

About

Sébastien Mc Mahon joined iA Financial Group’s economy team in January 2013. Throughout his career, Mr. Mc Mahon has held various positions in several prominent financial institutions, notably at Quebec’s Ministry of Finance and the Autorité des marchés financiers, Quebec’s financial market regulator.

Sébastien Mc Mahon also serves as Vice-President, Asset Allocation, and Portfolio Manager for our subsidiary, iA Investment Management Inc. (iAIM), with assets nearing $15 billion. Mr. Mc Mahon is also a member of the firm’s asset allocation committee.

Sébastien Mc Mahon

Chief Strategist and Senior Economist

This podcast should not be copied or reproduced. Opinions expressed in this podcast are based on actual market conditions and may change without prior warning. The aim is in no way to make investment recommendations. The forecasts given in this podcast do not guarantee returns and imply risks, uncertainty and assumptions. Although we are comfortable with these assumptions, there is no guarantee that they will be confirmed.

Share prices

2022-12-02 12:00 EST
  • ^TSX $20,485.66 -$39.79
  • $CADUSD $0.74 $0.00

Stay on top of the economy with our weekly newsletter.

I agree to receive emails and other electronic messages from iA Financial Group about their products and services.

You are signed up

In a few minutes, you will receive the most recent iA Newsletter at the following email address:

An error has occurred. Please try again.