JPMorgan chooses stocks to benefit if metaverse takes off in China

Some parts of China have officially promoted metaverse development plans. Pictured is an exhibition area of ​​the metaverse during an annual commercial services exhibition in Beijing on September 1, 2022.

China Information Service | China Information Service | Getty Images

BEIJING – When it comes to futuristic concepts like the metaverse, analysts at JPMorgan believe they have found a strategy for choosing Chinese stocks.

The Metaverse is loosely defined as the next iteration of the Internet, existing as a virtual world in which humans interact through three-dimensional avatars. The hype around the metaverse engulfed the business sector about a year ago. But at least in the US, it’s not gaining the momentum that companies like Facebook are hoping for.

The social media giant even changed its name to Meta last year. However, its shares have fallen by more than 50% this year, far worse than the Nasdaq’s roughly 24% decline.

China faces the same consumer adoption issues as the United States. But the Asian country’s metaverse development faces its own challenge to regulatory scrutiny, which JPMorgan analysts pointed out in their Sept. 7 report. Cryptocurrencies, an important part of the metaverse outside of China, are also banned in the country.

However, equity analysts have said that some Chinese internet companies could gain from particular industry trends driven by the development of the metaverse.

The best choices

This is based on the competitive advantage of companies in particular aspects of the metaverse, such as games and social networks.

“The development of mobile Internet and AI over the past 5-10 years suggests that a company’s competitive advantage in a part of the technology ecosystem is often more important in determining long-term value creation for shareholders than part of the ecosystem in which the company operates. Analyst Daniel Chen and his team said in the report.

Here are two main ways companies are making money as the metaverse grows, analysts said.

Gaming and Intellectual Property

Digitization of trade and consumption

“The metaverse will likely double the time devoted to digital” from the current average of 6.6 hours, analysts said. They also expect businesses to be able to generate more revenue per user.

JPMorgan estime que le marché adressable total en Chine pour les services aux entreprises et les logiciels dans le métaverse evening of 27 milliards de dollars, tandis que la numérisation de la consommation hors ligne des biens et services représentera un marché de 4 000 milliards de dollars en China.

In business services, NetEase already has a virtual meeting room system called Yaotai, while Tencent operates a video conferencing application called Tencent Meeting, the report noted.

Tencent also has “rich experience managing China’s largest mobile social network Weixin / QQ” and can benefit from selling virtual items within these platforms, analysts said.

Likewise, “Bilibili’s high user engagement will enable it to capture rich monetization potential in [value added service]/ long-term sales of virtual items, “analysts said.

They noted that the app is the “go-to entertainment platform” for Chinese people aged 35 and under, with each user spending an average of 95 minutes per day on the platform during the first quarter.

“Obstacles to overcome”

But it is not yet clear how practical these efforts will be commercially.

Without naming the companies as stock picks, analysts at JPMorgan described a number of other metaverse projects underway in China, such as Baidu World’s XiRang virtual project and iQiyi, NetEase and Bilibili’s virtual reality development supported by Baidu.

Analysts said VR devices are currently too heavy to be used for long periods of time and cloud computing capabilities and metaverse content remain limited.

“We believe the ‘perfect shape’ of the metaverse could take decades to achieve,” analysts said. “While we believe it [total addressable market] since the metaverse is huge, we think there are various technological hurdles to overcome. “

– CNBC’s Michael Bloom contributed to this report.

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