Metaverse stock crash, how similar is it to the dot-com bubble?

Metaverse(“IF YOU CAN’T ACQUIRE IT, COPY IT”, HISTORY OF FACEBOOK IMITATION) , the word that warmed up 2021, is receiving a big challenge from the beginning of the new year in 2022.

 

Shares of companies such as Roblox and Unity Software, which reached their all-time highs at the end of last year, were cut in half, and Facebook, which even changed its name to a 'meta platform', evaporated its market capitalization of 222 billion dollars in just one day. occurred until

No matter how much the US Federal Reserve raises interest rates by 25bps (0.25% points) or 50bps, seeing the metaverse-related stock price falling like this, I can't help but think of the dot-com bubble 22 years ago.

Why did the dot-com bubble happen?

In a nutshell, it can be said that it is a bubble caused by the time difference between ideal and reality.

The dot-com bubble burst from 1999 to 2000.

With the advent of the Internet, a newspaper article, the anticipation that this would cause a great revolution was amplified.

As a result, expectations were raised that the operating profits of IT companies would soar, but the dot-com bubble collapsed when the corresponding performance did not support it.

In retrospect, it wasn't very wrong.

Facebook generates more than 100 billion dollars in sales from advertising alone, and has an operating profit of more than 40%.

On the other hand, thanks to the spread of the Internet, memory semiconductors from Samsung Electronics and SK Hynix were able to sell exponentially, and a new economy could be established based on the platform called YouTube.

At that time, not only video calls but also Internet access through mobile phones existed only in the imagination, and I did not think of using a facial recognition or fingerprint recognition function to authenticate myself through a mobile device.

Assumptions of history make no sense, but what if in 1999 investors could all of a sudden jump in a time machine to 2022? I saw Amazon and Microsoft earn hundreds of billions of dollars a year through cloud services, and Facebook and Google earn billions of dollars through Instagram and YouTube, recording operating profit margins of 30-40%. Otherwise, I would not have judged that the stock price rise at the time was a bubble.

(It will take 14 years for the Nasdaq to recover to its all-time high after the dot-com bubble... Source = Yahoo Finance )

So, what if today's brilliant engineers at Apple, Google, and Amazon could go back 22 years?

Could the dot-com bubble never happen?

Again, the answer is 'no'. This is because the hardware that fits the software does not support it.

We are currently able to watch YouTube on the subway, have zoom meetings with people on the other side of the world, and work remotely, all because we have hardware such as 5G and LTE that is configured based on optical communication networks.

If it was a network connection through a telephone line like the current modem, or an ADSL-level communication network, it would take years to build the hardware once.

In the case of optical communication, about 90% of the global Internet's overseas connection network traffic is generated through submarine optical cables, and this is not something that will be created overnight by increasing the CAPEX cost.

*CAPEX:
Capital Expenditures, Capital Expenditures. Expenses in the course of an investment made to create future profits or to acquire value.

In order to install this submarine optical cable, it is necessary to proceed step by step through equipment such as large ships and ROVs (Remote Controlled Underwater Robots).

It is not an infrastructure structure that is built because you want to build it right away.

On the other hand, wireless communication is not created automatically just by talking.

If you look closely at the rooftops of buildings around us, there are base stations and you will see antennas for each carrier, which also requires significant capital investment from telecommunication companies.

Although it is currently in the early stage of 5G, CAPEX investment continued through various generations such as 4th generation LTE, 3G, 2G, and 1G.

As the generation increases, the bandwidth used increases. The communication network speed increases, but the coverage becomes narrow, which causes the disadvantage that much more base stations must be installed.

4G LTE shows a base station coverage of about 15 km, but 5G only covers 3.5 km, so more facility investment is required.

Ultimately, whether the current metaverse flow will become a bubble or a disruptive innovation depends on how much the time difference can be reduced.

If you look at the hardware of Metaverse as cloud, 5G, and AR/VR hardware, it can be seen that AR/VR hardware is currently the bottleneck.

No matter how much the economy of the virtual reality world such as ZEPETO or Roblox is activated, there are bound to be limitations in the 2D-based monitor world.

Therefore, AR/VR software companies such as Unity Software and Unreal Engine need to grow, and things like Metaplatform's Oculus and Apple's AR Glass must be commercialized.

Although there are rumors that Zuckerberg of the metaplatform even cried when the stock price fell by 26% a day, this is the reason for cheering for his AR/VR moves.

Although there is no problem with business performance with the current SNS portfolio alone, it must have been an inevitable choice for Zuckerberg, who felt the limit of growth, not to become a frog in a hot pot.

Finally

Let's compare the present and the dot-com bubble market from a macroeconomic point of view.

From a macro perspective, it is true that the current S&P 500 and Nasdaq market caps are somewhat burdensome.

This is because the market cap as a percentage of GDP is already overvalued compared to the dot-com bubble.

But from a money supply perspective, the story is different.

This is because the reality is that the market cap of M2, which is a broad concept of currency, still shows a lower ratio than at the time of the dot-com bubble.

*M2 :
An indicator of the cash flow released on the market. Money market funds (MMF), regular deposits and savings for less than two years, beneficiary certificates (funds), and transferable deposit certificates are added to the agreed currency (cash, demand deposits, etc.).

For this reason, those who are concerned about overheating are referring to market cap as a percentage of GDP, and those who preach optimism are referring to market cap compared to M2.

It is up to each individual to decide which logic is correct.

If you look at ArcInvest's 'Big Idea 2022', this phrase appears in the AI ​​chapter. Later, historians will speak of this era like this.

"Everything changed"

The basis for this statement is that the five innovation platforms (Artificial Intelligence, Robotics, Energy Storage, DNA Sequencing, and Blockchain Technology) are disruptive and disruptive, reducing costs and creating more innovation and demand. Will such an era really come to us?

Are we really living in such an era?

I do not know whether the 2020s in which we live will be remembered as a bubble or as the era of the 4th industrial revolution, but at least we must not neglect our efforts to read the times.

In terms of professional baseball, 30% is an excellent result, but if the probability is 50%, you must be willing to work hard to get that opportunity.