In Focus: The Metaverse, Bet on David not Goliath
Updated: Nov 1, 2021
In my eyes there is no bigger underachiever in the public markets than AT&T ($T). Currently, AT&T is valued at $180 billion, but it should be worth so much more. The reason behind my assumption is because AT&T was the dominant name in home telephone service in the 80s and 90s. In the mid 90s, as more Americans started to buy computers and get online, phone companies like AT&T and Verizon ($VZ) were excited to collect money from households getting additional phone lines just for internet use. To those companies, AT&T and Verizon, the revenue stream from dial up internet was going to last forever, but it didn't.
AT&T did embrace the internet, as can be seen in their 1996 annual report, but I always felt they could've done more. I believe AT&T could've been what America Online was, but it lacked vision.
Intel ($INTC) is another company that I've seen underachieve. Believing that PC sales would grow forever, the company was late to mobile, and it has cost them dearly.
With Facebook ($FB) announcing its name change to Meta Platforms last week, the buzz around the Metaverse has amped up. Investors are scrambling to place their bets on the company that will dominate the Metaverse and become the next billionaire maker. The name change and the scramble to invest in the Metaverse is what prompted me to think about AT&T and Intel this week.
What Seems Obvious Doesn't Always Work Out
If I had an investment decision to make in the early 90s on which company would benefit the most from the internet, I would've likely picked AT&T; and if I was told in the mid 90s that almost everyone was going to have a cellphone by 2010, and to make an investment based on that knowledge, I would've likely gone with AT&T as well.
For Intel, If I had to make an investment in 2000 based on computers and electronics going mobile, Intel would have been the easy choice, if not them then Microsoft, because why wouldn't a company that's dominated desktop computers not also conquer mobile computing?
In both cases I would've been wrong. American Online went on to do what it did, which is make early investors in the internet rich. And eventually access to the internet was taken over by cable companies, which AT&T had to transform itself into to keep up. Instead of Intel, if I made an investment in a little known company named Skyworks Solutions ($SWKS) in 2000, I would be up over 456% today, and that doesn't include the dividend payments, Intel has only gained 17% in that same timeframe.
While most Metaverse investment articles will point you to the same few names, Facebook, Apple ($AAPL), Amazon ($AMZN), Google ($GOOGL), Microsoft ($MSFT), Nvidia ($NVDA), Roblox ($RBLX), Snap ($SNAP), Sony ($SONY), Unity ($U), Epic Games and Valve, my belief is that these are the safe bets, but they won't be the big winners.
My thought is the big money is going to be made with a David and not a Goliath when it comes to investing in the Metaverse.
I saw a small and scrappy Amazon beat Barnes & Nobles and Sears to e-commerce and then beat them both in the business of ecommerce. Apple ended up taking the reins of personal communication devices from Motorola ($MSI) and Blackberry ($BB). I witnessed a small company named Google conquer the internet, something that Microsoft seemed in a position to do in the late 90's early 2000s, but didn't. Which takes me to another reason why you should look to small companies for your Metaverse themed portfolio.
The Political Environment Favors David
There is an interesting debate on whether or not Google would be around today in all of its current glory if Microsoft wasn't entangled in antitrust litigation during the late 90s to the early 2000s. I believe that without the antitrust suit, Microsoft would've stomped Google out, because that's just what Microsoft did back then to small companies.
Currently big tech is under a lot of scrutiny. It seems like every quarter a district attorney is looking into a tech firm or a big tech CEO is being grilled on Capitol Hill. While I don't think much will come out of the government's probe into some of the country's big tech firms, I do think that big tech will tread lightly when it comes to growing their Metaverse ambitions, which should give small companies an opportunity to get their ideas out to the public.
Why Bigger Isn't Always Better
The problem with being big is that you have to focus or keep a large part of your focus on what keeps you big. The big companies being linked to the Metaverse also have to focus on the products and services that keep them profitable and their shareholders happy. In the late 90s, Google only had to worry about search, and making a better search engine than what was available. That focus allowed them to beat out Yahoo and Microsoft, which had other products and services to worry about along with their subpar search engines.
Small companies have the luxury of being laser focused on one thing, the Metaverse, and how their product or service will exist in the Metaverse. This is a great advantage over the bigger tech names who are also trying to establish a Metaverse presence.
Sorry to Disappoint
Usually, this would be the part of the article where the writer tells the reader about several small companies that are working on the Metaverse, but unfortunately I haven't come across any that I've been able to fully research and also feel comfortable recommending to someone. So this particular article isn't giving you a fish or even teaching you how to fish, it's only telling you where to look for fish.
When it comes to investing in the Metaverse, the big names seem like the way to go, but my experience has shown that it's the small unknowns that really win when it comes to new technology.