Metaverse ETF

Xbox + Cloud Gaming

Since its inception over a decade ago through OnLive (The Verge), cloud gaming has continuously overpromised and under-delivered. Numerous platforms including Google Stadia, Sony Playstation Now, Nvidia GeForce Now, and Amazon Luna have yet to dramatically impact the way most gamers play their favorite titles. Of these, Nvidia GeForce Now is probably the best in class.

While the technology across the competitive landscape is undoubtedly impressive and highlights how far gaming has come in the last decade, underwhelming performance has plagued the various platforms through issues such as inconsistent frame rates and excessive input lag. At the end of the day, playing games on a PC or console is still the optimal approach due to the game running locally vs remotely in a data center that is most likely far away from you.

Microsoft is looking to change this perception and establish a meaningful lead amongst a crowded field of tech juggernauts. Earlier this week, the Xbox Cloud Gaming team announced that their service is now available to all Xbox Game Pass Ultimate members through web browsers on Windows PCs and Apple iOS devices in 22 countries (Microsoft Announcement).

There are two things worth noting from this announcement:

1) Accessibility across devices: users are now able to access uninterrupted play across more devices. Not only can gamers play AAA titles on their iPad, they are also able to save their progress and continue on any other device without missing a beat. Whether you are using an Xbox Wireless Controller, mobile phone, or the Backbone One attachment (Backbone One), games are always at the user’s fingertips. That said, this sounds a lot like Google Stadia’s efforts, which have largely failed to truly push the agenda forward for cloud gaming. Hence the second development...

2) Data center upgrades: in order to improve the gamer’s experience, Microsoft has upgraded its data centers with Xbox Series X hardware to improve load times and frame rates while streaming at 1080p and up to 60 frames per second to minimize latency. Although none of these updates will necessarily make the cloud gaming experience truly competitive with traditional gaming systems (local compute vs remote compute), it is a step in the right direction.

Takeaway: Microsoft’s data center upgrades are an investment in the infrastructure required to meaningfully advance their cloud gaming efforts. It’s a smart move that they are simultaneously opening up this versatility across devices to their Xbox Game Pass subscriber base.  

"The Metaverse" Goes Public

Investors seeking exposure to the gaming industry welcomed The Roundhill Ball Metaverse ETF (NYSE:META), a new exchange-traded fund (ETF), to the New York Stock Exchange this week (GamesBeat). This ETF pools together a list of 50 companies that Roundhill believes are best positioned to shape the metaverse across a defined set of categories: computing, networking, virtual platforms, interchange standards, payments, content, and hardware.

Within this ETF, the top 5 holdings are Nvidia, Roblox, Tencent, Microsoft, and Fastly. These 5 holdings account for approximately 25% of the fund. The portfolio is heavily weighted towards some of the largest and most prestigious names in the gaming ecosystem, with close to 95% of the assets classified as large cap and a median market cap of $74.3 billion (Roundhill Investments).

As with any ETF, it’s worth looking more closely at the underlying holdings. In the case of META, an investor is receiving a relatively broad and diversified set of tech/gaming companies, many of which have a significant portion of tangential (non-gaming) revenue lines (i.e. Fastly). Additionally, it is less clear as to how many of these individual holdings directly relate to the metaverse specifically (not just online gaming). This ETF will likely perform exceptionally well given the strong underlying fundamentals of its holdings, yet I’d like to highlight that a public markets basket of "metaverse stocks" is almost impossible to accurately reflect at this stage.

However, much like the various assets within META, the concept of the metaverse today is limited to a fragmented set of tools across areas such as content, hardware, network infrastructure, and blockchain. Although “metaverse” is one of the gaming community’s favorite buzzwords right now, it is certainly a trend that is already well underway through modern online gaming and social platforms. That said, despite their incredible powers and achievements, companies like Alibaba, Coinbase, Snap, and Unity (all holdings of META) are unlikely to build a unified metaverse and all unite as one. They will each try to go after it alone.

Takeaway: a ubiquitous, decentralized, interconnected, and interoperable version of the metaverse is unlikely. In the near term, there will be many “metaverses” that are fragmented, siloed, and owned by dozens of tech giants (just like people jump between Instagram, Snap, and TikTok). A metaverse ETF does not have enough publicly traded options to truly reflect this nascent trend today, but eventually it will (10-15 years from now). Either way, public market investors are looking for more baskets like this and it’s only positive for the space to see increased investment in-flows across asset classes in gaming.