Metaverse: Virtual reality tech 'still clunky,' analyst says

Cowen analyst Doug Creutz joins Yahoo Finance Live to discuss the technology supporting the metaverse and the outlook for companies like Meta and Roblox.

Video Transcript

- Cowen out with a rating on Roblox that's got a lot of people talking. Initiating coverage with an underperform rating and a $31 price target. Let's bring in analyst Doug Creutz. He's saying the metaverse is set to be immensely important in the future. But such a future is so far off technically, it's pointless to buy into the metaverse. Let's bring in Doug there. And Doug, specifically on the metaverse-- we'll get into your Roblox case in just a bit. But you say that we're still about 10 years away. It feels like even over the last few months, the hype around this has really called down.

DOUG CREUTZ: Yeah. Look, I think some of the hype was tied to Web3 and crypto. And obviously, that's had a very tough last six months or so. You had Facebook changed its name to Meta. And then they did a demo of what they're working on. And it didn't impress anyone. I think on the technological side, yeah, look, VR gear is still clunky. It's not really friendly to a mass market consumer. So there hasn't been a lot of adoption there yet.

I also think that the streaming technology for video games and for interactive entertainment is going to be a critical part to having a metaverse. And that's also still a ways away from being a really high quality product.

- With that said, that reason is the very reason why you said that Roblox you think is a bit overvalued. And we just gave the price target there. How do you think investors should be looking at this stock? We just got that announcement last week that they're going to get into 3D advertising. They are the leader in the metaverse. So wouldn't it be the case that if you believe this thing, even if it's 10 years out, is eventually going to be a big market, this is where you want to put your money?

DOUG CREUTZ: I don't know if I'd say they're the leader in the metaverse. I mean, they have a platform that is a gaming and entertainment platform. A metaverse sort of implies that all the platforms that are out there are linked together. And this isn't that. It's a walled garden, just like many other gaming platforms. It does allow user-generated content. And that's somewhat unique.

But for now, they have great plans for the future. And they have very interesting technology. But as we said, we think it's a ways away. And even if it's sooner than we think, they're going to be competing with Meta and Google and Apple and Microsoft and probably the large entertainment companies and probably the large video game companies, all of which have tremendous resources. And a lot of them have really strong intellectual property as well. And that's going to be, I think, a real battle for them sort of regardless of where they are today.

DAN HOWLEY: It seems that the idea of the metaverse kind of right now is split into two realms. You have the kind of business side of things and the everyday side of things where if you are walking around with glasses eventually you'll be able to communicate with friends and family. The business side, you'll be able to talk to your coworkers remotely and look at their avatars. And then you have the gaming side of things where you have this idea of Roblox or Fortnite and things along those lines. I guess, are those going to further deviate from each other? Are we going to see gaming kind of go in a more VR-style direction than this whole we'll all be able to interact and walk around with glasses? Do you think it's going to stay the same? Or, I guess, is it going to be these two separate worlds?

DOUG CREUTZ: Yeah. It's a good question. I think Roblox believes they're going to converge. They've talked about the fact that they see Roblox in the future is a meeting place. I have a little bit of a hard time seeing that just because we already have Zoom and it works very well. And I don't know that people who are doing business want to be talking to avatars. I think they want to see the real person.

On the gaming side, we've had VR gaming for a bit. It's just it hasn't really gone anywhere. The experience isn't that great. And the worlds we have now are already pretty immersive. The worlds of Warcraft and the Fortnite and so forth, and Roblox. But they are what they are. They're gaming worlds. They're not something bigger than that.

DAN HOWLEY: I guess when it comes to gaming, obviously, the industry is massive. We see it continue to grow despite kind of the setbacks that we've seen from that kind of COVID hangover. At what point do you think gamers will jump into this? I mean, I'm a gamer. I haven't found any experiences that are particularly worth noting. I have a 65-inch TV. I don't really see the need to strap a headset on and jump into a world where the graphics don't even compare to what I can get on a modern console or my PC. I guess, do you see it eventually overtaking the standard kind of gaming that we have now with the TV? Or do you think it's going to be something that's more niche in the gaming industry?

DOUG CREUTZ: It still feels very niche. I mean, people just don't want to put headsets on their heads. That's the bottom line of it. You still have the problem of if you think you're moving in virtual space and your body is telling you you're not moving in real space, then you're going to not feel great. And that's a real hindrance. It's one thing if you're sort of attending a virtual event, let's say, where you're not really moving. But if you're trying to play a first-person game in VR, good luck. And I don't know that that's an easy problem to solve. It certainly isn't solvable with the technology we have right now.

- Doug Creutz, managing director senior research analyst at Cowen. Good to have you on today. And our thanks to Dan Howley as well.