Things are certainly moving fast for Meta, the parent of Facebook – but not in a good way. It very much looks broken. Behind its mega-stock status and flash offices, Meta faces unprecedented threats from its unravelling business model, crashing advertising revenues, product obsolescence, regulatory threats, and from the unknowns of trying to reinvent itself at the centre of where Zuckerberg sees himself dominating next; the “Metaverse”. Whatever that might turn out to be.
Zuckerberg has a massive problem. His existing brands Facebook, Instagram and WhatsApp are under the cosh. They are, essentially, advertising companies under competitive and evolutionary threat. They remain dominant brands in social media advertising, but their user bases are not as sticky as once assumed, and they no longer have a monopoly as social media breaks and fragments into multiple players and themes. They are under enormous regulatory and technical threat.
Things started to get bad last year when Apple gave users of its IOS operating system the option to stop trackers – meaning every keystroke on your iPhone is no longer an invitation for resellers to target and sell you cheap tawdry crap you don’t need or particularly want. Google is doing the same with Android. The result is Meta’s advertising income stream is drying up. It’s not going to get better. Advertisers have more exciting places to go.
Imagine a future where kids can attend any school they want as digital avatars – interesting and horrific in terms of real social interaction, not to mention the health consequences of living online.
The reason the name changed from Facebook to Meta was a tacit acknowledgement of the inevitable – Facebook is no longer the new, new, exciting thing. Meta lost 20% of its value on a single day in January when Zuckerberg broke the cardinal rule of tech and told the truth: admitting Facebook has lost ground to newer, more hip, cool rivals like Tik Tok. If you want to know where it’s headed, look up Friends Reunited. Who knew competition and evolution are real? Tech evolves and old firms get eaten up for lunch by new firms… My kids think Facebook is for grandparents and the truth is It is.
As the platforms close tracking windows, Zuck was forced to admit it’s difficult to make money “where less data is available to deliver personal ads”. In a world where it’s being outcompeted, and regulators are establishing the primacy of personal data… Facebook’s model of milking that data looks doomed.
Of course, these are only the visible tips of a much larger iceberg – regulation. Facebook is the mega-villain when it comes to all the ills of the internet social media connected age. When it comes to the evils of fake news, we need a witch to burn, and the unlikable Zuckerberg is just the kind of scapegoat that will burn nicely.
This is why professional politician Nick Clegg, former deputy prime minister and one-time leader of the UK Liberal Party, is going to replace Zuckerberg as the face of Meta. Clegg will “lead our company on all our policy matters,” said Zuck.
That is either another massive sell signal for the beleaguered stock, or it’s a stroke of political genius. Clegg was never a top tier politician. He was the buggins-turn leader of the 3rd party in a political duopoly. He got famous because David Cameron didn’t win a majority. Suddenly he was catapulted to power in a coalition, bet let himself and his party become the Tories’ stooges to be wiped out at the next election. He was a loser, but a kind, earnest and boring chap who looked like he at least cared. Perhaps that makes him the perfect face to defend the undefendable?
Zuckerberg will find new ways to monetise whatever data Meta can find in its virtual and augmented reality universe – which is not without associated risks to consumers and therefore the company.
Meta’s response to the approaching death of Facebook is to reinvent itself, springing its new concept, the Metaverse, upon us. Zuckerberg has the previous form as something of a congenital acquisitive hoarder of the future – just ask the Winklevoss twins. He clearly wants to own whatever this new “metaverse” is with the intention of monetising it. The question, and future value of Meta, ultimately lies in how well he achieves that.
So, just what is the Metaverse? What kind of opportunity does it represent? Is it, as so many fantabulous things in this wonderful world are, yet another digital solution in search of a problem? Is it hype or a genuine new trend?
The Metaverse concept is not new. It was first described and named by Science Fiction writer Neal Stephenson in the very early days of the internet revolution. Way back in 1992 he presented a vision of human avatars inter-reacting in a 3D digital space. He pretty much nailed it – establishing digital life alongside concepts like “proof of work” leading inevitably to the concept of digital currencies, the genesis of Bitcoin, the Blockchain and even Non-Fungible Tokens.
Today, the Metaverse is being “imagined” as ripe with opportunities; as some kind of Internet version 2.1 – describing how we will all integrate digitally. It will offer a more immersive world of deeper engagement into virtual and augmented reality – once the technology catches up with the promises. “Digital Visionaries” are talking about how natural it will become to do everything from shopping, business and living a social life online in the form of single or multiple digital avatars… It informs the world of “Ready Player One” and raises fears about a “Matrix-like” future.
The thing is – whatever Zuckerberg is telling us – it’s already happening and has been for some time. Meta is not the leader – it's just a follower. The global gaming sector is now infinitely larger than the film industry at over $100 billion per annum. Zuck is trying to paint the Metaverse as a Meta creation where he intends to own as a virtual environment where “you can be present with people in digital spaces”, an “embodied internet”, and how it’s going to “succeed the mobile internet”.
The stock will probably stage a buy-the-dip rally, but like any main-sequence star towards the end of its life, it’s burnt all its hydrogen fuel of imagination, inventiveness and innovation.
It’s an opportunity for him to monetise Facebook’s investment in things like the Oculus VR set and to diversify his earnings from pure (yet risky) advertising to actually selling hard and soft stuff in the Metaverse.
Will he succeed in making Meta the dominant venue in the Metaverse?
Don’t underestimate the potential for monetisation in the Metaverse. Last year 17-year-old artist, Fewocious, sold 600 digital sneakers in NFT format through an online auction for…. $3.08 million. There is now a whole digital fashion universe selling unique NFT apparel gamers can wear online. As yet there isn’t a way of being able to dress across the net (enabling digital avatars to wear the same gear across multiple games and in multiple venues) but I’m assured it’s going to happen. There are now a host of earnest fashion designers exclusively focused on digital fashion.
There clearly are also real and valuable applications for the metaverse in terms of virtual reality business and education. Effectively, education went virtual last year when millions of school kids zoomed an academic year because of COVID. Imagine a future where kids can attend any school they want as digital avatars – interesting and horrific in terms of real social interaction, not to mention the health consequences of living online.
Zuckerberg is a smart fellow who sees potential. He knows Facebook is a risk business – the declining numbers of young people using it isn’t compensated for by the ones using Instagram. The dominant younger generation platform is TikTok, which is now part China Government-owned after it took an ownership stake in Bytedance. As the Facebook brand inevitably fades, its advertising revenues will plummet.
Therefore, he is staking the next stage of his brand’s development on his company’s 3D universe. Zuckerberg will find new ways to monetise whatever data Meta can find in its virtual and augmented reality universe – which is not without associated risks to consumers and therefore the company. And that’s where the jury is out – can he make Meta as much of a monopoly as Facebook once was? If not, and I suspect it’s going to be a very crowded space, then Meta’s future is debatable long-term.
So how does this end for Meta?
What happens next will likely start to happen quickly – fast and broken. Meta is already in trouble for in-house bullying and whistleblowers about its rotten corporate culture. As the stock tumbles and belief wanes, it will suffer key staff defections. The stock price will spike up and down. The firm will miss deliverables, and while trying to fix Facebook, lose focus on Meta. The stock will probably stage a buy-the-dip rally, but like any main-sequence star towards the end of its life, it’s burnt all its hydrogen fuel of imagination, inventiveness and innovation. It won’t go supernova, but as it collapses inwards and atoms fuse into heavier elements, first helium and down the sequence and it will briefly become a red-giant burning brightly in the financial media-sphere for months before it contracts into its white-dwarf long drawn out slow-burnout into nothingness….
Ouch… but not a bad metaphor if I say it myself.
In a statement, the company said it was reserving the decision which it made in January 2018 as the crypto landscape continues to “mature and stabilise.” Meta also said that new government regulations had provided clearer rules for the sector.
Crypto companies will now have access to the more than 3 billion people who use Meta’s platforms across the world. These include Facebook, Instagram, and WhatsApp.
Meta also plans to expand the number of regulatory licenses it accepts from 3 to 27, though advertisers still require written permission from the company before moving to promote crypto exchanges, lending and borrowing, crypto wallets, and crypto mining tools.
“These changes will help to make our policy in this space more equitable and transparent and help more advertisers, including small businesses, grow their audiences and reach more potential customers,” Meta said. “Cryptocurrency continues to be an evolving space and we may refine these rules over time as the industry changes.”
The move comes as Meta pushes toward the metaverse, a virtual world in which people can interact via digital avatars. It is hoped that the metaverse will support crypto payments and other blockchain-based technologies.
“Over time, I hope that we are seen as a metaverse company and I want to anchor our work and our identity on what we’re building towards,” Zuckerberg told a virtual conference. “We’re now looking at and reporting on our business as two different segments, one for our family of apps, and one for our work on future platforms. And as part of this, it is time for us to adopt a new company brand to encompass everything that we do, to reflect who we are and what we hope to build.”
Following Zuckerberg’s announcement, “metaverse” has become an even bigger buzzword in tech, with plenty of investors now wanting a slice of it. But what exactly is the metaverse? And should you also consider investing in it?
What Is The Metaverse?
The metaverse is far from being a new concept. The term “metaverse” was coined by science fiction author Neal Stephenson in his 1992 novel Snow Crash. Stephenson used the term to mean a computer-generated universe, which is now understood as an immersive virtual world where people come together to play games and socialise but also to work.
In a founder’s letter, Zuckerberg explained that the metaverse will be defined by “the feeling of presence.”
“In this future, you will be able to teleport instantly as a hologram to be at the office without a commute, at a concert with friends, or in your parents’ living room to catch up,” Zuckerberg said. “This will open up more opportunity no matter where you live. You’ll be able to spend more time on what matters to you, cut down time in traffic, and reduce your carbon footprint.”
Metaverse users will be able to create avatars that resemble their real-world appearance, with Zuckerberg insisting that avatars will become as common as profile pictures on social media. As technology improves, people will be able to join the metaverse with increasing ease, simultaneously engaging with the physical and virtual in mixed reality.
Metaverse Use Cases
While the use cases for the metaverse are essentially only limited by human creativity, some ideas make more business sense than others. Here are three common examples:
Games: Gaming is held in close association with the metaverse and understandably so, with games such as Minecraft and Fortnite, as well as platforms such as Roblox, already offering a taste of the metaverse. However, in the coming years, games are set to become increasingly immersive, increasingly social, and increasingly interactive.
Travel: There is huge potential for the metaverse to someday allow users to visit tourist destinations in multiplayer mode via telepresence, potentially making world travel more accessible for millions of people.
Commerce: The metaverse would allow retailers to release products into games alongside their real-world product launches. Vice versa, metaverse users will likely design their own brands and products, which may then come to exist in the real world too.
Metaverse Industry Outlook
Many believe that companies and investors alike cannot ignore the emerging online marketplace that is the metaverse, arguing that it would be a repeat of companies dismissing the emergence of the World Wide Web. Just like the World Wide Web, which now plays a monumental role in day-to-day life, the metaverse will create new marketplaces that mirror those of the physical world.
The potential in this space is huge, with platforms such as Roblox already seeing significant success. However, the market is expected to double with ease over the next few years. According to ARK Invest, revenue from virtual worlds will compound 17% annually to $390 billion by 2025. Meanwhile, Bloomberg Intelligence predicts that the market opportunity for the metaverse could reach $800 billion by 2025.
Investing In Companies Engaged In The Metaverse
Investors may look to gain exposure by investing in companies that are actively working on metaverse applications, such as Meta Platforms (Facebook), Microsoft, and Roblox.
- Meta Platforms: As Zuckerberg has made the world well-aware, Facebook is in full metaverse mode. Prior to their rebranding announcement, in mid-October, Facebook said it planned to hire 10,000 employees in Europe to build the “metaverse”, stating its construction would take place over five years. The company called its work in Europe an “exciting time” for European tech.
- Microsoft: Microsoft CEO Satya Nadella has spoken about the concept of an “enterprise metaverse” which would enable the company to expand its dominance in the professional software market.
- Roblox: As a global platform that brings people together through games, Roblox already embraces many metaverse aspects today with its own digital currency and the virtual social experiences that it enables.
Metaverse ETFs
For investors who are struggling to decide which metaverse stock is best to invest in, an option worth considering is investing in the Round Ball Metaverse ETF (META). Launched in June 2021, META is the first index globally designed to track the metaverse’s performance and has already amassed $176 million in assets. The fund tracks the Ball Metaverse Index and invests in global public companies actively involved in the metaverse.
The vast majority of META’s holdings are US equities (80%), with the rest spread between Asian countries such as China, Singapore, Japan, Taiwan. The three top holdings are NVIDIA (8.99%), Microsoft (7.26%), and Roblox (6.79%). Since starting out in June, META has risen by almost 3%.
Summary
While the metaverse is by no means a new concept, Facebook’s recent push will spur further investments into the space. In the coming years, society is almost certain to dive deeper into a digital economy and virtual world, significantly altering life as we currently know it.
This article does not constitute financial advice. The author and Universal Media Ltd. are not qualified financial advisers. All investments are made at the reader’s own risk.
Investing in individual shares conveys more danger than other trading asset classes. It may be because the shares conceivably offer more significant yields. Most famous shares are usually updated weekly. The stock market’s tendency implies that there are continually intriguing developments going on consistently. This is creating boundless opportunities for the investors to create positive returns. Since there are tons of companies today, it can sometimes be difficult to decide which are the best shares to purchase.
Top Shares To Buy Right Now UK
Below is a quick-fire list of some of the top shares to buy right now UK. If you'd prefer to purchase any of these shares right now, eToro is a good option to consider as you’ll need not pay any commissions and you can create an account in minutes.
1. Tesla (TSLA)
Our top pick in the securities exchange right presently is Tesla. Tesla was perhaps the most sizzling stock for 2020. Numerous financial backers and individuals trust the company and buy Tesla stock due to the popularity of Elon Musk. Today, Tesla is experiencing strong sales growth. The electric vehicle creator's offer cost was up over 600% because of an assortment of components.
2. HSBC (HSBC)
HSBC has had an all-over-year. HSBC is a bank with a tremendous presence in Asia. It is still making a good presence in the UK and other countries.
3. Facebook (NASDAQ: FB)
Facebook shares are down almost 7% throughout the most recent 5 days. The organisation reported that a change to Apple's security strategy would affect its advertisement business. This implies that genuine transformations, like deals and application innovations, are conceivably higher than whatever Facebook is reporting to its clients.
4. DISNEY (NYSE: DIS)
The Walt Disney Company, or Disney, is a worldwide entertainment organisation whose scope extends a long way past ‘The Happiest Place on Earth' at Disneyland. In addition to the 12 Disneyland Theme Parks, it works well throughout the planet. But lately, it has forcefully ventured into different areas of entertainment.
5. ZOOM (NASDAQ: ZM)
If you hadn't found out about Zoom before the Coronavirus pandemic, we're willing to be that you have now. This cloud-based video conferencing software turned out to be incredibly famous during lockdown throughout the world.
6. Unilever (ULVR)
Interestingly, Unilever is a famous consumer goods company. It owns many famous brands such as Lipton, Magnum, Dove, etc. For some time, it has been promoted as a safe stock due to the consistent popularity of the company's products. Generally speaking, Unilever would be a decent purchase right currently because of its low cost and alluring profit yield.
Conclusion
Determining the top shares to buy right now UK isn’t pretty much as simple as reading an article. In reality, investors must initially understand what they look for from their investment portfolio before they even think about investing a dollar in a single stock.
Apple saw $21.7 billion profit for the three-month period that ended in June, marking its best-ever fiscal third quarter. The company’s record-breaking performance was boosted by strong sales of the new iPhone 12.
Google’s parent company Alphabet has revealed second-quarter revenue of $61.8 billion and a profit exceeding $18.5 billion, a figure which stands at twice its profits for the same period last year. Google’s advertising revenues also rose 69% from last year.
Microsoft has also reported record-breaking revenues of over $46 billion for the quarter, a 21% rise compared to the same quarter last year.
As share prices have rocketed throughout the coronavirus pandemic, the collective market value of Apple, Google, Microsoft and social media giant Facebook, is now worth over a third of the entire S&P 500 index of America’s 500 largest traded companies.
Unsurprisingly, the market’s reaction to the grand breakthrough G7 announcement of a landmark “minimum corporate tax rate of 15%” is one such moment of noise over substance. While the announcement played brilliantly with the political classes who argued: “at last global corporate tax rates are being addressed and the largest tech firms will now pay their fair share”, does it mean corporates will suffer the ignominy of paying actual taxes?
Of course they will…not.
The share prices of the largest tech firms with the finest tuned tax-minimisation corporate structures barely yawned. The salaries of Corporate Tax Lawyers and Tax Accountants are already going North in anticipation of a feeding frenzy for their services. These professions set to reap windfall profits from the political posturing around the tax noise. They will dissect the deal’s underpinnings with a fine comb, identify the back doors, engage lobbyists to push for advantageous clauses, and get set to arbitrage every single facet of the deal – assuming it ever happens and becomes a reality.
If any European country ever receives anything close to a cheque for 15% of the profits made by a big digital tech company selling in their borders, I shall eat my hat. (I get to choose which one…) I’ve already seen a scheme from one accounting firm outlining how a major internet retailer that isn’t a river in Egypt can wriggle out because of the marginal cost calculations… something to with governments getting “the right to tax 20% of profits exceeding a 10% margin” – which sounds much less than 15% of profits the politicians blithely assure us they have secured.
But, of course, and tax deal is a win/win for everyone:
- The Sherpas of global finance say it’s a revival of “multilateralism” as nations come back together in the post-Trump era to solve “critical challenges facing the global economy”.
- The Politicians are all over it like a rash – looking forward to all that lovely US tech money to spend… while claiming to have righted a massive historical wrong in the lack of cash paid by many firms.
- Corporates will be delighted. A chance to show they support the good cause of tax equality, while behind the scenes, they keep emptying our wallets.
- National tax agencies won’t bat an eyelid. They know better than to go for the big tech firms. Such firms are heavily tooled up with the best tax lawyers. It’s much easier to go from small businesses that tend to cave quicker to HMRC threats.
On the face of it, the Irish should not be particularly happy at the loss of the jurisdictional arbitrage advantage – but even they are smiling. They know big European-tax dodgers aren’t going to haul out of Dublin any time soon. Many may decide to beef up their tax special-forces in Ireland in the expectation any tax deal is still years away from full ratification by all the members of the OECD, and that it may not happen at all… ever.
And there is no guarantee the Americans are going to accept it. Political gridlock and a Republican Party in thrall to the Beast of Mar-a-Lago means if it looks bad for America, then it hasn’t a breeze of passing. The reality is the new G7 minimum tax proposal is going to struggle to get through the slough of despond that is deepening US political gridlock. The Republicans are already parroting Trump that such a deal can’t be good for US Company revenues, therefore should be rejected.
What will the G7 tax deal mean for markets?
It’s going to be a busy time for the credit agencies, figuring out if the shock horror of corporates actually paying taxes in countries where they sell stuff, pushes a few names down a credit notch or two because paying taxes comes before paying bondholders. I’d be surprised if they find many lame ducks – but the credit agencies won’t miss the opportunity to be relevant and will no doubt start pumping out research for bond managers to fall asleep over.
In the real markets, experience equity investors know corporates will find new and better tax avoidance schemes to supersede whatever the agreement outlaws. As one wag once pointed out: “if you’re paying taxes on profits, you ain’t doing it right.”
That leaves an interesting thought: what about all the US tech firms now sitting on enormous cash piles, built up from untaxed profits channelled through corporate headquarters in nations willing to charge zero taxes – like Ireland? Retroactively taxing these untaxed gains isn’t on the agenda and will never ever happen…. Better spend the money on acquisitions, infrastructure, etc… heaven forbid paying staff better. But company spending is an economic multiplier – so it’s a good thing. Right? It will push up the stock price and allow Jeff Bezos to fund his trip to the moon…
I suspect that in the long run, all we will ever remember about the successful G7 agreement on tax was that there was an agreement… it will be rigorously enforced… and the tech giants still won’t pay very much tax.
Good tech firms rise because they create new value. 15 years ago, Amazon was a mystery – what was the point in a delivery company not making any money? Apple was building a niche with new gizmos like the iPod, while Facebook was one of many banal social media sites we could hook up on. Uber and AirBnB didn’t exist. If you wanted to watch a film before the video was released, you went to Blockbuster.
Now, these same tech firms are worth trillions – because they created entirely new markets and new revenue streams. They carry substantial growth premia: Facebook consumed its rivals while its targeted advertising becomes more sophisticated allowing it to rake in money. Apple has become the most valuable company on the planet – by creating an ecosystem of IOS addicts to buy its constantly upgraded models that haven’t innovated anything fundamentally new in 10 years. Amazon is indispensable as the place stuff comes from. Google is successfully monetising every aspect of our lives. And Netflix…Netflix is an outlier. It’s great. My family couldn’t live without it – anything is better than watching the BBC news. Although Netflix invented the concept of a streaming service, it’s now just one among many. When Disney launched its streaming service in 2019, it was able to attract more subscribers faster – because streaming demands great content. If you want great content, Disney has it in spades. Netflix invented streaming, but Disney will dominate.
Generally, the success of companies that innovate new markets underlies their initial success. It also causes hype – when every investor thinks every new exciting tech launch is going to replicate the success of Amazon or Apple, it’s wise to remember tulip markets and step back and consider. This year’s big story has been ZOOM – worth billions because everyone on the planet suddenly learnt it exists and started using videoconferencing.
Or how about the blowout record-making IPO success of Snowflake – the cloud-computing solutions provider? Snowflake competes in a very crowded market. Its rivals have been making very healthy billion-dollar profits for a number of years. One firm, 40-year old Teradata, makes $2 bn revenues from its cloud activities and is valued at $2.5 bn. But brand-new Snowflake makes $250 million revenues, runs at a loss and is worth $80 billion – despite doing essentially the same thing as profitable Teradata. But Snowflake is new – and investors seem to be believing the old market lie: “this one is different”.
Tesla is a bubble. But it's one that, thus far, hasn’t popped.
Nothing illustrates the hopes and expectations that drive tech stocks as well as Tesla. It’s a fascinating company. It has created an entirely new market in electric vehicles, and it also dominates the battery tech. It is successfully making and selling cars and setting the market’s agenda.
There are two different views on Tesla:
There is the “you don’t understand” perspective favoured by the Tesla fan-club. They have some good points. They stress Tesla is a long-term play on the future not just of cars, but everything about capacitance (batteries), personal transport and power. It’s created and taken leadership of the expanding non-ICE (Internal Combustion Engine) market. It’s got proven battery technology and it’s collected massive amounts of data that will enable to lead autonomous driving – enabling Tesla owners to run their precious cars as self-driving taxis when they aren’t using them. The Tesla fans say the traditional financial markets don’t understand what massive future value the firm has created.
The market clearly believes in Tesla. It’s worth over $400 bn dollars despite making less than $1 bn profit in the last 12 months (the first time it’s ever posted an annual profit). While most car companies trade on modest single-digit multiples, the market clearly believes in Tesla’s exceptionalism at a plus 400 multiple.
Even though it produces less than 0.5% of global auto sales, Tesla is worth 2.5 times as much as Toyota which builds over 10% of the world’s cars, each year posting healthy profits of $23 bn on 10 times multiple. The big three US auto companies make 18 million cars per annum and post profits most years.
The unbelievers say Tesla’s minuscule profits after 10 years of developing their car model means it’s just a small niche player. They say it’s too reliant on selling carbon-regulatory certificates – every car it sells is sold at a loss. Ferrari makes 23% margin on each car while Tesla loses money. Naysayers don’t believe the hype around batteries – pointing our newer, cleaner battery tech, which can charge in seconds, will make every Tesla obsolete overnight; sometime in the future. They say Tesla’s batteries, actually made by Panasonic, won’t set the industry standard. The Chinese are saying they already have million-mile batteries, and although Tesla got a Chinese factory up and running in record time, the Chinese are outselling it.
Even sceptical financial analysts accept that Tesla makes good cars, but they believe that it needs to massively increase its margin per car and increase production at least 10 times to justify a stock price even half of its current value. In short - Tesla is a bubble. But it's one that, thus far, hasn’t popped.
But it will.
What’s driven Tesla to such stratospheric values is a result of some extraordinary factors. Founder Elon Musk is regarded by fans as a far-sighted prophet of genius. To detractors, he’s an arrogant market manipulator, hypester and snake-oil purveyor. Musk attracts the hopes and dreams of retail investors who are jumping on board the Tesla party bus. Good luck to them.
The main issue Tesla fans are missing is the same thing that is going to test Netflix and a host of other overpriced tech stocks: Competition.
Every other automaker gets what Tesla is doing. So far no one is doing it better. Someday, very soon, someone is going to launch something better. It might not be anything like Tesla, or it might just be much, much less hyped.
Interest in digital currency has grown significantly in the last few years. In this piece, we explore what digital currencies are, the current state of the cryptocurrency market and how it will impact the economy over the next few months based on current trends and events occurring in the UK.
Put simply, cryptocurrency is a digital currency managed by a network of computers.
Run through open source code, computers are used to verify each cryptocurrency transaction. Unlike traditional physical currency, they are decentralised and not managed by a central bank.
You have probably already heard of Bitcoin, which was one of the first types of cryptocurrency to come into existence. However, hundreds of other currencies have been developed since and each have different characteristics. For example, the coin Ethereum can be used to create contracts and run applications, while Litecoin and Bitcoin Cash run in a simpler way to Bitcoin, with the focus of these currencies being on processing transactions.
The technology used to manage these transactions is known as Blockchain. This technology has been around for a while and is used for many other purposes, including updating healthcare records. The UK government is even investing in blockchain to record and administer pension and benefit payments.
Cryptocurrencies have a huge amount of potential, particularly when it comes to providing accessible options for allowing people across the world to exchange money.
Currently, the use of cryptocurrency is still an emerging trend with a limited number of businesses accepting it as a payment method. These digital currencies are experiencing somewhat of an identity crisis as debates around its definition as a currency or commodity continue and authorities argue over whether it should be regulated.
Cryptocurrencies have a huge amount of potential, particularly when it comes to providing accessible options for allowing people across the world to exchange money.
However, governments and banks are reconsidering their cautious attitude towards digital currency as global businesses begin to invest in this technology. Facebook’s upcoming launch of their coin, the Libra, has caught the attention of the Bank of England. The BoE have warned Facebook that their currency would need the same level operational resilience as debit and credit card accounts, if they are to manage high volumes of transactions securely.
Libra will not be decentralised like other cryptocurrencies. Instead, it will be managed by an association of major technology and financial service companies.
Some EU governments have taken a hard-line approach, with France’s Finance Minister declaring that they will not allow the use of Libra within Europe. They state that the currency would put consumers at risk of financial fraud. Nevertheless, with the UK’s recent withdrawal from the European Union, it is likely that they will be exempt from such measures.
Brexit has also presented new opportunities for cryptocurrency processors. It is predicted that more cryptocurrency exchange offices will open in Dublin in 2020. This hotspot is ideal as it is an EU member with close proximity to the UK market.
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While cryptocurrencies are often seen as a highly volatile form of currency, the recent worldwide Coronavirus outbreak has had a damaging impact on the global economy and resulted in investors seeing digital currencies as a safe haven.
The virus is predicted to result in consumers buying less at physical stores as they avoid getting infected. As a result, the amount of online purchases being made is set to increase significantly, and with more powerful firms such as Facebook migrating over to cryptocurrency transactions, we can expect more and more of these purchases to be made with digital money.
Nigel Green, Founder and CEO of deVere Group, has warned that coronavirus, paired with the heightening geopolitical and trade tensions, could drive the world to the brink of a global recession this year. He said: “Investors have largely been caught off-guard by the serious and far-reaching economic consequence of the coronavirus. This, despite major multinational organisations already lowering their profit guidances, and many more likely to do so in coming weeks. Clearly, this will hit global supply chains, economies across the world and ultimately government coffers too.
“However, it does seem that the world is waking up to the reality of the situation as the containment of coronavirus hasn’t yet materialised and confirmed cases soar in different countries. Until such time as governments pump liquidity into the markets and coronavirus cases peak, markets will be jittery triggering sell-offs”, Mr Green notes.
Investors around the world must take action if they want to safeguard their wealth in the current volatile environment and they must take precaution about the stocks they want to put their money in as the coronavirus outbreak is disrupting the supply chains of many companies.
Here is Finance Monthly’s list of the top 5 stocks that are likely to weather the storm, which will hopefully help you with handling your portfolio in light of the coronavirus news.
McDonald’s
You can find McDonald’s signature golden arches in over 100 countries across five continents. It is one of the biggest and most recognisable fast-food chains in the world. Thanks to its unique franchising structure and low prices, McDonald’s is one of these companies that will thrive in any economic condition.
With over four decades of consecutive annual dividend increases, McDonald's is a Dividend Aristocrat[1] - it has issued dividends every year since 1976. In the last few years, it has repurchased the shares at a meaningful rate which has boosted the earnings per share and has supported the stock price.
Although the fast-food chain had to temporarily shut over 300 restaurants in China in January (which is only about 1% of its China stores), due to fears about the coronavirus outbreak, China accounts for only 2% of McDonald’s earnings. McDonald’s stock has doubled since 2015 and has shown no signs of slowing down, even with the coronavirus out there.
Facebook is one of the best and most safe stocks to buy on coronavirus fears. Although shares have taken a hit, investors should remain focused on the long term, valuing stocks based on fundamentals.
Facebook is one of the few companies that have no exposure in China, where the outbreak is the worst, as the social media platform is blocked there. On top of this, there are no signs that minimal outbreak in other countries has resulted in weaker digital ad spending, however, investors should keep an eye out for any commentary from Facebook’s management on whether or not the virus is having a material impact on the social network.
When taking the current low-interest-rate environment, it is also worth noting that Facebook is a growth stock, and growth stocks tend to perform very well in low-interest-rate environments.
The stock was also cheap before the coronavirus selloff, so all in all, FB stock could provide investors with a high-quality, big-growth company with minimal coronavirus exposure.
According to Jeremy Bowman:[2] “Facebook is also highly profitable and sitting on $54 billion in cash and equivalents, giving the company plenty of resilience against an extended disruption. The stock is trading at a P/E ratio of 21 based on adjusted earnings and backing out its cash sum. Considering its growth rate, the stock already looks like a bargain. If shares keep falling, it will be a downright steal.”
Even people who haven’t been affected by the coronavirus are becoming more and more health-conscious, trying to take precautionary measures through buying products like hand-wash, wipes, sanitisers, disinfectants, etc.
Johnson & Johnson
Currently in its tenth year of economic expansion, Johnson & Johnson’s stock has a reputation as a safe haven. Despite a slight dip in the stock however, it seems like its future will be bright.
Professor Kass from the University of Maryland[3] is bullish on healthcare stocks due to the amount of money that people are expected to spend on healthcare in the upcoming months, thanks to the coronavirus outbreak.
Kass commented: “… several stocks that are currently under the radar for this possible epidemic should do very well as healthcare spending in the years ahead is likely to increase substantially”.
The rationale behind this is super straightforward – Johnson & Johnson sells a wide range of everyday healthcare products to millions of people across the globe. Even people who haven’t been affected by the coronavirus are becoming more and more health-conscious, trying to take precautionary measures through buying products like hand-wash, wipes, sanitisers, disinfectants, etc. At the time of writing this, pharmacies and drug stores in the UK have run out of hand sanitisers due to popular demand. Johnson & Johnson is therefore expected to “continue experiencing rapid growth in revenues and earnings in the foreseeable future,” says Professor Kass.
Thus if anything, the virus’ outbreak could create a long-term positive effect on the Johnson & Johnson stock.
Apple
Thanks to the coronavirus outbreak, global technology giant Apple has been hit hard from multiple angles, with having to temporarily close all corporate offices, stores and contact centres in Mainland China, and suppliers being ordered to reduce or halt production. This was all followed by a 5% drop in Apple’s stock on 31st January, however, Apple will be perfectly fine and remains a stock worth investing in. Yahoo Finance believes that[4] the App Store will get a big boost during the outbreak due to the hundreds of millions of Chinese consumers being stuck at home right now, who will be looking for ways to entertain themselves. Additionally, February doesn’t tend to be a big month for iPhone sales as it is. The company relies heavily on its new iPhone launch in September and by then, coronavirus will be in the past (hopefully).
Apple’s stock remains loved by most investors and will undoubtedly weather the coronavirus storm. Once that’s over, with the release of its 5G iPhone, the tech giant is expected to see huge growth in the last few months of the year.
More and more people choose to not leave their houses amid coronavirus fears across the globe, which means that technology companies that serve consumers at home, such as Netflix, could come out as a winner from the coronavirus outbreak.
Netflix
Despite the tumble in the broader market averages, Netflix stock, along with other home entertainment stocks have been less affected. Netflix stock has made somewhat of a comeback after a solid run in 2018 – it has seen an increase in stock value of some 40% since September. On the stock market [5] on Thursday 27th February, the video streaming provider fell 2% to 371.71 after spending most of the session in positive territory.
Raymond James analyst Justin Patterson commented[6]: "We believe Netflix is in a unique position to benefit from 1) a solid content lineup; 2) normalisation of competitive landscape; 3) increased consumer time spent indoors". It makes perfect senses - more and more people choose to not leave their houses amid coronavirus fears across the globe, which means that technology companies that serve consumers at home, such as Netflix, could come out as a winner from the coronavirus outbreak.
Netflix stock ranks number 15 on the IBD 50 list[7] of top-performing growth stocks.
[1] https://www.fool.com/investing/2019/11/19/why-its-time-to-buy-mcdonalds-stock.aspx
[2] https://www.fool.com/investing/2020/02/25/3-stocks-im-buying-if-the-coronavirus-selloff-gets.aspx
[3] https://finance.yahoo.com/news/7-u-stocks-buy-coronavirus-195612724.html
[4] https://finance.yahoo.com/news/7-u-stocks-buy-coronavirus-195612724.html
[5] https://www.investors.com/market-trend/stock-market-today/stock-market-today-market-trends-best-stocks-buy-watch/
[6] https://www.investors.com/news/technology/click/netflix-stock-home-entertainment-stocks-safe-coronavirus/
[7] https://research.investors.com/stock-lists/ibd-50/
On the back of last week’s news that PayPal decidedly pulled out of the alliance backing Libra, Facebook’s new cryptocurrency project, Mastercard, Visa, eBay, Stripe and Mercado Pago have also announced their withdrawal from Libra.
Finance Monthly has heard from Martha Bennett, VP & Principal Analyst at Forrester, who had this says this was to be expected.
This wasn’t a surprise, and not just because PayPal announced a few days earlier that it wasn’t going to sign up to the Libra Association at this time. As I (and others) also pointed out during the summer, none of the 27 Libra members announced in July had actually signed any binding contracts – it was letters of intent; in other words, companies were keeping their options open. With the first session of Libra’s governing council looming (today), it was make-or-break time in terms of making an actual commitment.
[ymal]
As the regulatory and government backlash in the US and around the world proved, the Libra proposal not only proved controversial, but there was also far too little detail available to come up with meaningful judgements. Despite protestations to the contrary (i.e. Facebook only being one of many organisations within Libra, represented by its subsidiary Calibra), Facebook has been the driving force behind Libra, and with David Marcus, very much remains a public face of Libra. This in turn heightened the scrutiny of Libra, with concerns not only raised by FS regulators but also privacy and competition authorities. There was always potential reputational risk associated with participation in Libra; the degree of the backlash, combined with Libra’s/Facebook’s somewhat unconvincing efforts at entering into the dialog with regulators and the continued absence of details around key aspects of Libra’s functioning and governance (including how regulatory compliance was going to be achieved), clearly proved too much.
I wouldn’t write off the initiative yet, but the Libra Association’s work has become much, much harder.
Will Libra survive? I wouldn’t write off the initiative yet, but the Libra Association’s work has become much, much harder. Given that the key concerns from PayPal and the other payments firms were around the lack of meaningful detail around regulatory compliance, a real step change is needed here. The recent statements from David Marcus and spokespeople from the Libra Association have continued to be thin on detail. There’s also the matter of tone; for example, there’s not much point in reiterating that Libra won’t pose systemic risk – if regulators and governments have concluded that it does, a more comprehensive and in-depth response is called for.
There’s been a lot of talk around the intervention on the part of the two US Senators writing to payment networks, and what impact that had. Whether or not those letters were appropriate is a separate discussion. In my view, the companies in question would have pulled out anyway, for the same reason PayPal did: insufficient visibility on how Libra was really going to come to grips with compliance, and the associated risk of reputational damage (as highlighted before), and potentially worse (e.g. impact on those organisations’ relationships with regulators).
Last week, the payments firm announced it would be retreating from the 28-strong alliance that had promised to back Facebook’s launch of the Libra, and its digital wallet, Calibra. PayPal has not explained why it had made the decision.
Perhaps its because regulators in Europe, specifically France and Germany have vowed to block the digital currency, perhaps it’s because it has little confidence in the efficacy of the Libra.
According to The Block, a PayPal spokesperson said PayPal “made the decision to forgo further participation," but remains supportive of Libra's goals and will continue to explore how the two firms can work together moving forward.
"We remain supportive of Libra’s aspirations and look forward to continued dialogue on ways to work together in the future…Facebook has been a longstanding and valued strategic partner to PayPal, and we will continue to partner with and support Facebook in various capacities…” reads the statement.
In response, spokespeople for the Libra Association, made up of 28 companies and non-profits, including Visa, Uber and Mercy Corps, said it understands the difficulties ahead and reconfiguring the financial system may be hard but that it is committed to achieving said goal.
However, as it stands, Visa, Mastercard, and Stripe have also been reported as hesitant to sign official commitments to the Libra.
If it was possible to rewind back to 1999, we’d all invest in Apple stock instead of that VHS Recorder. In a new study by SmallBusinessPrices.co.uk, we analyse the priciest stocks of 2019 and what you could have bought with $100 over the decade.
Amazon is the most expensive stock, with the average stock price calculating to a whopping $1,752 - meaning $100 couldn’t buy you any stock, whilst in the year 2000 you’d be able to afford just two.
As one of the top e-commerce platforms in the world, Amazon gets more than 197 million visitors each month, and in 2018 the company’s share of the US e-commerce market hit 49%.
Based on the average stock price of Apple in 2000, $100 could have bought you around 35 stocks, whilst this same value wouldn’t buy a single stock based on 2019’s average stock price.
Steve Job’s innovative and visionary approach led to Apple becoming one of the biggest tech giants in the world. The launch of the iPod revolutionised the portable media player market, eventually launching iTunes which essentially changed the world’s understanding of digital media and the music industry.
Who’s worth more?
Microsoft top the leaderboard this 2019, with the company’s net worth being valued at $1 trillion - one of the only three companies to pass this figure, with Apple and Amazon being the other two in recent years.
Amazon takes second place for net worth, being worth around $928.5 billion, whilst Apple follows behind on $892.1 billion.
Despite Apple taking third place for net worth, the brand still remains champion for yearly revenue. In 2018, the giant made over $265.6 million - higher than both Amazon and Microsoft who made $232.9 and $110.4 million respectively.
What are unicorns?
A unicorn business is a startup with a valuation of $1 billion, they are privately held and rely on venture capital. The name ‘unicorn’ comes from the rarity of businesses gaining such success.
Which sector is taking the lead?
Despite unicorn companies being private and not being publicly traded, if you’re hot on investment and want to keep an eye on which sectors seem to tip the edge, we’ve taken a look at the sectors which are most likely to become unicorns.
With over 360 companies being valued at $1 billion this year, the e-commerce sector took the lead, with 42 companies being declared as unicorns. This was closely followed by Fintech, which saw 39 companies join the leaderboard, whilst Internet Software & Services took third place with 32 companies.
Ian Wright from SmallBusinessPrices.co.uk stated: “Unfortunately we can’t go back in time and invest that $100 we spent on junk, in Apple or Amazon! However, this research reveals just how quickly some of these brands have grown in the last few years, and how privately held start-up companies are also experiencing huge valuations from investors taking big risks to be successful.”
Investments of the 2000s
To see how much $100 could have bought you in the 2000s, or find out more about unicorn start-ups in more detail, you can take a look at SmallBusinessPrices.co.uk’s tool here.
