A Special Note from Michael: Before we get started with today’s chat, I wanted to take a moment to talk about the news out of Washington; congress has passed the bipartisan infrastructure bill, and that includes $7.5 billion to build out electric vehicle charging stations over the next five years. Electric cars are about to become more practical than ever before, and we can play that other side of that equation, the batteries that store the energy the cars need. You can find out how right here.
At this very moment, history is being made, and in a video game of all places.
The company behind this video game is not doing this with groundbreaking gameplay, storytelling, or graphics, but by showing the world just what this new thing called the “metaverse” is capable of.
Ahead of platforms like Zoom or YouTube, the video game “Roblox” is carving out a niche as a concert venue.
About a year ago, in November 2020, the musician Lil Nas X gave a concert on this platform and attracted no less than 33 million views. To put things in perspective, the world’s largest stadiums tend to only hold just over 100,000 people, and none are even as large as 200,000.
The size of Lil Nas X’s Roblox audience would still be more than 150 times bigger than even that. Now, another music act, a band called Twenty One Pilots, just held a Roblox concert of their own.
I believe this is the future of entertainment and a whole lot more. It’s an example of the unstoppable new metaverse tech trend, a trend into which Silicon Valley is investing billions, and which is destined to be worth trillions.
That’s why I’m going to show you a leader in this emerging field that just recently doubled its earnings, and that could take share price along with them…
Now then, In the metaverse, you’ll be able to virtually attend concerts with friends, take a Formula 1 race car for a spin, even hang art in your home or knock down walls in a house you’d like to buy.
This is not pie-in-the-sky thinking. It’s becoming reality as we speak.
After all, Facebook’s founder and CEO Mark Zuckerberg just renamed his company to Meta Platforms Inc. precisely because he believes the metaverse is the next big frontier in tech.
Imagine going on a walk. Where today you would simply see a shop window with some mannequins on display, the metaverse would have your AR glasses connect to the store’s platform and show you an animated, constantly updated display of the outlet’s latest offerings.
The metaverse also promises to allow us to experience visiting distant places from the comfort of our living rooms, to improve safety by making traffic signs more visible, and much more.
Simply put, it’s using AR and VR technology to allow us to overlay information onto the real world, and to interact with both at once.
There are dozens of tech firms in the metaverse space already, but the top 12 firms alone now sport combined market caps of roughly $11.5 trillion dollars.
One of the early leaders is privately held Epic Games, which makes the popular Fortnite video game. This is important because video gaming tech is a bulwark of the metaverse.
You see, gaming engines have advanced so far in their graphics that they are almost unrecognizable to the ones that powered games decades ago, and can be used for far more advanced applications.
That’s why, last April, Epic Games raised $1 billion to support the firm’s long-term vision of creating an immersive metaverse world.
Roblox Corp., the developer of the Roblox video game, hosted the in-game concerts I noted a moment ago. In May, the firm also held an event in its game world to celebrate Gucci’s 100th anniversary, where users bought limited-edition virtual Gucci clothing for their avatars.
As much as I respect Roblox, the company I have in mind offers us a rare inside track. It’s a firm whose payment systems and gaming sales are an unstoppable, high-margin combination.
That’s why I want to tell you about Apple Inc. (AAPL), which doesn’t make video games but is huge in the gaming world for its own reasons.
The Best Name in Games
Apple’s iPhones and iPads have been wildly successful as gaming systems. Apple makes a profit off each piece of hardware, and then takes a 15-30% cut of all video game sales on the Apple App Store.
In fact, in the fiscal year 2019, Apple made $8.5 billion in profits from gaming. That’s more than the gaming profits of Microsoft Corp. (MSFT), Sony Group Corp. (SONY), Nintendo Co. – the makers of the Xbox, PlayStation and Switch gaming consoles – as well as giant video game developer Activision Blizzard Inc. (ATVI) all combined.
In the metaverse, folks will be able to buy and sell all manner of goods and services, even paying within the virtual world, using something like Apple Pay.
Users also will be able to buy all manner of products for their avatars. Selling these items within “games” is already big business. According to Jefferies analyst Andrew Uerkwitz, people spend over $80 billion a year on video game avatars globally.
Currently, Apple takes a 15-30% cut of every purchase of an Appstore product – as well as of any in-app purchase. That gave Apple a huge amount of money from game and avatar purchases, money that Epic wanted to keep for itself.
And now that these video games are beginning to merge with AR and VR tech to become the metaverse, it means that Apple is set to become a major toll taker.
In its October 28 earnings report, Apple reported $83.4 billion in revenues, a record for the September quarter, and up 29% from the year before. Of that, $18.28 billion were from services.
The only division of Apple that did better was the iPhone, which brought in $38.87 billion in revenue, up 47% from the prior year.
Now, Apple’s per-share earnings recently doubled. If we cut that back to 36% to be conservative, we’d see a double in two years, with a strong chance that stock price would follow soon after.
And be sure to check back with me on Friday when I reveal another one of my favorite Metaverse picks. This company has both great hardware and software…
Cheers and good investing,
Michael A. Robinson