Meta Platforms stock suffered a historic rout - but that doesn't derail the metaverse industry's mega-growth potential, say 2 experts

• Meta stock's massive selloff doesn't speak to the wider growth potential of the metaverse, two experts told Insider.
• Insider spoke to people behind the Subversive Metaverse ETF and the Roundhill Ball Metaverse ETF.
• Goldman Sachs has projected the metaverse will grow into an $8 trillion market.

Meta Platform's worst-ever stock rout earlier this week reverberated throughout the tech sector, but the metaverse's overarching growth story remains intact, say two people behind exchange-traded funds focused on the emerging online-based world.

On Thursday, $251 billion was erased from Meta's market capitalization, recording the steepest one-day selloff for a publicly listed company. The 26% price slide kicked off after fourth-quarter earnings showed the first-ever fall in daily Facebook users.

It was the first quarterly report since Meta changed its name from Facebook last year to reflect its focus on creating its version of the metaverse, a virtual world where people could shop, work, and play. The Reality Labs division that's working on enabling AR and VR technologies posted a 2021 operating loss of $10.19 billion, four times its annual revenue of $2.27 billion.

The sobering report also hit shares of Nvidia, Roblox and other companies working on building the metaverse, which Goldman Sachs has said could become an $8 trillion market.

But the sinking of Meta's stock doesn't speak to a larger narrative about the growth potential for the wider metaverse ecosystem, Michael Auerbach, founder of Subversive Capital, told Insider in an interview.

"I think it's strictly a reflection of Meta's choices vis-à-vis the metaverse," said Auerbach, whose company has been vocal against Meta standing as the preeminent face of the metaverse. "Both equity investors, but also their own users, are not keen to sort of join Facebook on this journey as they pivot into what they're calling their metaverse."

Subversive's recently launched Subversive Metaverse ETF has a 1% short position on Meta that he said could increase over time but will not fall below that threshold.

Auerbach added that he doesn't believe Meta's stock plunge will ultimately deter equity investors from putting money into wider virtual-world ambitions.

"If you look at some of the other earnings that have come out from some of the major tech players like Apple and Google that also have their own metaverse strategies, I don't think that is an area of focus that is scared off by Facebook's earnings results," he said.

Then there's Matthew Ball, CEO of Epyllion, an advisory and venture investment firm focused on the metaverse. He helped launch the Roundhill Ball Metaverse ETF, which was the first ETF to track the performance of the metaverse. Unlike Auerbach's ETF, Meta stock is among the biggest holdings in the Roundhill ETF.

Ball told Insider that two areas of Meta's report underscore the vulnerability of its pre-metaverse business model. The first is Meta's warning of a potential $10 billion loss this year due to Apple's addition of a function to iPhones to stop brands from tracking consumers across apps, which would hit its advertising revenue. The second is the decline in Facebook user engagement as younger demographics socialize on Tik Tok and even gaming platforms such as Roblox.

"Both of those two trends actually validate the focus on the metaverse," he said.

Auerbach also pointed to the emergence of other metaverse platforms, such as Roblox, and said investors will start seeing companies roll out more immersive experiences in 2D games played among both young and older audiences.

"Kids are immersing themselves in games like Roblox … in these closed versions of the metaverse," he said. "We believe that's going to begin to open up where you'll be able to move from platform to platform."