In our view, the global Internet is in the middle to late innings of the innovation curve of Web 2.0 (the shift from desktop to mobile computing & from local to cloud storage) and the “leaders” of this wave of the Internet are now firmly established. In framing the next wave of computing (Web 3.0), we see the potential for dramatic shifts in industry structure (decentralized, more local/niche/targeted) that could impact current investor perceptions of platform moat/strength, industry input costs, possible headwinds to monetization driven by personalization and potential for shifting media & commerce trends. One element of Web 3.0 that has recently captured a lot of media & investor attention is the “Metaverse” (driven by RBLX public listing & FB renaming to Meta Platforms). In the report, we examine how the gaming/media landscape has already shown some key elements as to how the Metaverse might evolve and how themes such as decentralized web activity & virtual experiences could become hallmarks of many of the next wave of computing in Web 3.0. In terms of stocks under coverage, we highlight Meta Platforms (FB), Snap (SNAP) & Roblox (RBLX) as key Buy-rated stocks exposed to this multi-yr theme.

Looking forward, we see a multi-yr period of investment ahead as companies position for computing needs, hardware/software development & test/learn on use cases for consumer & enterprise. For example, we est. FB will invest ~5% of its mkt cap over the next 3 yrs (or $39bn) toward these efforts and that, YTD, the private mkt (across gaming, online games, AR, & virtual world categories) has seen ~$10.4bn of capital raised. In terms of scale of potential investments, we frame a range of outcomes from ~$135bn to ~$1.35tn. Looking beyond the investment cycle to monetization & economic activity, we provide a scenario analysis around what % of the global digital economy might shift towards the virtual world & also apply a range of how the Metaverse may expand the TAM for digital goods/services. Using mkt data on the global digital economy as a % of total GDP (~17% or ~$15tn in ‘21), we frame a range of potential outcomes from ~$2.6-12tn (or ~$8tn at the midpoint), representing a shift of 15% & 33% (respectively) of the digital economy towards the virtual world and 2.5% & 25% (respectively) mkt expansion. While the range is quite broad, we acknowledge that we are still 15 yrs into Web 2.0 and expect the timing of Web 3.0 will be similar, if not longer, in duration.