Metaverse Stocks Meet Terrestrial Realities

Facebook FB took the broader market down with it on Thursday when earnings disappointed the Street. The bad financial news offered by Facebook's parent, Meta Networks, triggered a more than 20% loss in share value. Facebook reported a revenue of $33.67 billion, 0.87% higher than the $33.38 billion estimated by the analysts. Earnings per share came at $3.67, 4.4% below the Street expectations of $3.84. Whether Zuckerberg visits his holdings through his avatar in the metaverse or in person at his brokerage firm, suffice it to say the insanely rich Facebook founder will feel the sting of a $29 billion loss in wealth. 

None of this means that the metaverse is dead, but it does mean that even in a metaverse/dog coin/meme stock world, the Street and its earnings expectations are as real and terrestrial as the tanks aligned on Ukraine's Eastern border. 

So, what is the metaverse and when will this brave new world really start to take shape? More importantly, where in this metaverse should one invest?

According to Melaine Subin, a director at The Future Today Institute in New York City, the metaverse is – or rather, will be – an enhanced and highly customized reality for each individual fueled by the power of a "blend of physical and behavioral biometrics, emotion recognition, sentiment analysis, and personal data." She went on to tell the New York Post that while some will plug into the metaverse to "only to fulfill work or educational obligations," other people "will spend the majority of their waking hours 'jacked in.'"

In other words, some people will send their avatar to class or to the post office, while other, more "adventurous" people, will send their avatars to the top of K2. If this all sounds silly and, at best, mildly depressing, it is. But what is not silly is the money being poured into the race to recreate the world online. The city of Seoul, Korea announced plans to recreate its entire ecosystem in September—the first city to announce such ambitious plans to go full meta. While the flavor of delicious kimchi and barbecue may be milder using even the most advanced AR / VR headset, I suppose an invasion from its Northern neighbor would be far better observed virtually. 

Other than Facebook, which announced plans to pour $10 billion into this brave new world, Amazon AMZN, Microsoft MSFT, Snap, Inc SNAP, Pinterest PINS are just some of the more popular tech names vying for a piece of this imaginary world that is yet unrealized. Investors in this companies saw real, tangible losses today as these stocks fell on Facebook's earnings flop.

Of these, I'm sticking to Microsoft for the many reasons I've long articulated. My SNAP shares are far below what I paid, but at these prices and after today's hit, longer-term I like PINS and SNAP and, of course (though I don't know how long it will take to finally be proven right), I like Amazon. If the latter splits its stock, it might give a much-needed jolt to the tech and retail space investors have been waiting for. 

Despite plans to one day make our mundane lives equally mundane but entirely virtual, the gaming industry is really where the so-called metaverse is already apparent. Roblox RBLX is the purest metaverse gaming play investors should consider. The stock just fell even farther on a short call from The Bear Cave, a short-sighting (not necessarily short-sighted) site run by Edwin Dorsey. The site published a report about alleged misconduct and illegal activities related to Roblox. Apparently Roblox, a website for children to game and play online offers content that is, well, inappropriate. The report also added that "multiple major Roblox developers have been banned after being exposed for pedophilia."

Put options on the company have skyrocketed today as the stock fell more than 7% as of midday Thursday. 

While it seems obscene to recommend a stock in the midst of such monstrous allegationism, the company generated $599 million in free cash flow from $1.66 billion in revenue over the past 12 months – darn good for a growth company. Long-term the stock may be a winner, but I would avoid it for now for both financial and moral reasons.

After all, the last thing we need as humans is to create a metaverse as fraught with misery and suffering as the world we live in now.