Some regions of China have officially promoted the metaverse development plan. Pictured here is a general exhibition area at the annual service trade fair in Beijing on September 1, 2022.
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BEIJING – When it comes to futuristic concepts like the metaverse, JPMorgan analysts think they’ve found a strategy for picking Chinese stocks.
The Metaverse is loosely defined as the next iteration of the internet, existing as a virtual world in which humans interact through a three-dimensional avatar. The hype surrounding the metaverse swept the business about a year ago. But at least in the United States, it hasn’t achieved the momentum that companies like Facebook had hoped for.
The social network giant even changed its name arrive Meta last year. However, its stock is down more than 50% this year – far worse than Nasdaq’s roughly 24% drop.
China faces the same consumer acceptance problems as the United States. But the Asian nation’s aggregate growth faces its own challenge of regulatory oversight, which JPMorgan analysts pointed out in their September 7 report. . Cryptocurrencies, a staple of the metaverse outside of China, are also banned in the country.
However, stock analysts say some Chinese internet companies are able to cash in on specific industry trends due to the growth of the metaverse.
Top pick
Their top picks in this area are Tencent, NetEase and Bilibili. And among the names without internet in Asia, companies like Agora, China Mobile and Sony have made it to JPMorgan’s list of potential beneficiaries.
That’s based on companies’ competitive advantages in specific aspects of the metaverse, such as games and social media.
“The evolution of mobile Internet and AI over the past 5-10 years shows that a company’s competitive advantage in one part of the technology ecosystem is often more important in determining long-term value creation.” longer for shareholders than part of the ecosystem in which the company operates,” analyst Daniel Chen and his team said in the report.
These are the two main ways companies can make money as the metaverse grows, analysts say.
Games and intellectual property
In JPMorgan’s most optimistic scenario, China’s online games market nearly tripled from $44 billion to $131 billion.
Tencent and NetEase both have strong gaming businesses and partnerships with global industry leaders, analysts said.
For example, Tencent has a stake in a virtual world game company Robloxwhile NetEase has partnered with Warner Bros. for a Harry Potter-themed mobile game, the report pointed out.
Digitalization of business and consumption
The “metaverse will likely double digital time” compared to the current average of 6.6 hours, analysts say. They also hope companies will be able to generate more revenue per internet user.
JPMorgan estimates the total addressable market in China for business services and software in the metaverse will be $27 billion, while digitizing offline consumption of goods and services will make up the market. 4 trillion dollars in China.
In business services, NetEase already has a virtual meeting room system called Yaotai, while Tencent operates a video conferencing app called Tencent Meeting, the report pointed out.
Tencent also has “deep experience in managing China’s largest social network Weixin/mobile QQ” and could benefit from selling virtual items within those platforms, the analysts said.
Similarly, “the high level of user engagement will allow Bilibili to capture the rich monetization potential in [value added service]/virtual sales in the long run,” the analysts said.
They note that the app is an “entertainment platform for Chinese people aged 35 and under, with each user spending an average of 95 minutes a day on the platform in the first quarter.
‘Obstacles to overcome’
But it remains unclear how realistic such efforts would be from a business perspective.
JPMorgan analysts described several other metaverse projects underway in China, such as Baidu’s virtual company. XiRang worldand virtual reality development by iQiyi, NetEase and Bilibili backed by Baidu.
Virtual reality devices are currently too heavy for long-term use, and cloud computing and hyper-reverse content capabilities are still limited, analysts say.
“We think the ‘perfect form’ of the metaverse could take decades to achieve,” the analysts said. “While we believe that [total addressable market] Since the metaverse is huge, we believe there are various technological obstacles to overcome. “
– Michael Bloom of CNBC contributed to this report.
