Once upon a time, companies would set out to change the world. But now, some of the largest technology giants are coming together with a new goal: building an entirely new one. The virtual realm is formally known as the metaverse, and it's going to change the way we live, work, and socialize.
Three Motley Fool contributors think Meta Platforms (NASDAQ:FB), Matterport (NASDAQ:MTTR), and Nvidia (NASDAQ:NVDA) are the biggest game-changers in this space, and they could supercharge your stock portfolio over the long term.
Connecting the world in a whole new way
Anthony Di Pizio (Meta Platforms): Meta Platforms, formerly known as Facebook, made the branding change to reflect its shifting focus toward the metaverse. But its flagship social network is still the largest in the world with over 2.9 billion monthly active users. Its secondary brands, Instagram and WhatsApp, are also enormously successful in their own right.
The company will look to adapt its expertise in connecting people through on-screen social networks to this brand new virtual world where instead of profiles, its users will have their own avatars. CEO Mark Zuckerberg envisions these avatars having their own inventories of digital goods and the ability to teleport to different virtual experiences many of us wish we could do in real life. But the financial opportunity could arise from the metaverse having its own self-sustaining digital economy where users would pay for goods, services, and even activities. It's conceivable that if Meta Platforms owns the architecture to the virtual realm, it could earn revenue off every transaction that occurs within it. Think about how Apple earns money through the App Store: It owns the ecosystem and therefore has significant pricing power over those operating in it.
Zuckerberg acknowledges that building the metaverse will require a collaborative effort from many technology companies, including semiconductor producers that make the advanced chips that will bring it to life. But if Meta Platforms is as dominant in the metaverse as it is in social networking, it could stand far above the other players involved.
The company is on track to have grown its yearly revenue by 3,083% over the last decade to $117 billion this year. Yet that could be dwarfed in the future if the metaverse takes off.
Shaping the foundations
Jamie Louko (Matterport): The company has been focusing on bringing physical spaces to the cloud by creating 3D digital pictures of spaces. There are many things that businesses can do with "digital twins" of their buildings or spaces, like putting them online to allow potential customers to take a 3D tour of the space. Matterport has seen tremendous adoption by many big-name companies across various sectors, like Redfin in real estate and Swinerton in construction, but this could expand into any company that wants to move its business to the metaverse.
These broad and expanding use cases have led to impressive adoption. The company reported third-quarter 2021 revenue of $27.7 million, which grew 10% year over year. This was driven by subscription growth of 36% to $15.7 million and spaces under management reaching 6.2 million, jumping 62% from the year-ago quarter. Total subscribers more than doubled, reaching 439,000 subscribers on Matterport's platform.
What is not so hot is Matterport's profitability. The company is both net-income and free-cash-flow-negative by a wide margin. The company's free cash flow so far this year is negative $28 million, and the company had a net loss of $168 million in Q3, representing 600% of revenue. In Q3 2020, the company was near breakeven, but a 317% increase in operating expenses and a worsening gross margin caused the company's profitability to swing in the wrong direction.
If Matterport can become an integral part of building the metaverse over the next decade, its concerns about a path to profitability could disappear. Thankfully for Matterport, its services are exactly what is needed to build the metaverse. The company can bring physical spaces into the digital world, allowing users to create aspects of their real life in the cloud.
Additionally, companies that locate their spaces in the cloud can enable customers to shop online in a more immersive, 3D environment. This is the key objective of the metaverse, and Matterport has a clear ability to make this vision a reality.
A compute platform to power the metaverse
Trevor Jennewine (Nvidia): Nvidia specializes in accelerated computing. At the core of its portfolio is the graphics processing unit (GPU), a high-throughput chip that can perform thousands of calculations at once. And as its name implies, GPUs are particularly good at rendering ultra-realistic graphics in video games and films. But those chips have also seen adoption in data centers where they accelerate compute-intensive workloads like artificial intelligence (AI).
To supplement its hardware, Nvidia also offers a range of GPU-optimized software and application frameworks: Merlin for recommendation engines, Metropolis for computer vision, Riva for speech recognition, and NeMo for natural language processing. Collectively, those tools accelerate the development of AI-powered applications, and they form the foundation for something much bigger.
Earlier this year, Nvidia announced Omniverse Enterprise, a platform that blends its expertise in graphics, artificial intelligence, and supercomputing. Omniverse enables 3D creators (architects, engineers, developers) to collaborate in real time, across a range of 3D design software. It also serves as a physically accurate simulation engine, meaning it can generate synthetic data sets. In turn, those data sets can be used to train AI models for robotic applications and autonomous vehicles.
More recently, Nvidia announced Omniverse Avatar, a platform for building interactive AI avatars -- digital automatons that can see, speak, think, and understand. In the near term, that technology could revolutionize customer service; CEO Jensen Huang believes intelligent avatars will provide assistance across 25 million physical locations (e.g., retailers, restaurants, airports) and in the 100 million cars on the road. But in the long term, the implications are even bigger.
Specifically, intelligent avatars created in Omniverse will likely be a critical building block of the metaverse as the presence of interactive digital characters will make the experience more immersive, creating more ways in which users can engage in a shared virtual world. In fact, the Omniverse platform itself will likely play a key role in shaping the metaverse as it allows 3D design teams across disciplines and geographies to collaborate in real time. That's why Nvidia looks like a great way to play this emerging technology.