TradeSmith Snippets: The $13 Trillion Value of Virtual Worlds, an “Affordable Luxury” Stock, and Coinbase Waits for Better Days
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In this issue of TradeSmith Snippets, you’ll find investable information on:
- The potential $13 trillion value of the metaverse.
- An “affordable luxury” stock that just increased sales by 33% and hiked profit projections.
- What happened to the most popular cryptocurrency investing platform in the last quarter.
Enjoy your Monday — Keith Kaplan, CEO, TradeSmith
Snippet No. 1: Virtual Worlds and Real MoneyOverview
Ralph Lauren Corp. (RL) is teaming up with Epic Games (the maker of the popular online game Fortnite) to launch a physical and digital fashion line.
Ralph Lauren redesigned its iconic logo for the fashion line, swapping out the Polo Pony for a colorful cartoon llama. Polo shirts featuring the updated logo have a price tag of $125.
The collection will also be available in the virtual world of Fortnite, where gamers can buy outfits for their avatars for $6.
The TradeSmith Takeaway
As silly as it may sound, buying virtual goods generates real money, and it’s part of what helped Fortnight haul in $5.8 billion in revenue in 2021.
Now, virtual worlds and the metaverse have not yet entered the mainstream.
Don’t expect Grandma to be wearing a headset and playing virtual bridge with her friends this Thanksgiving.
But banking giant Citi believes the metaverse could be worth up to $13 trillion by 2030, which is one of the reasons why Mark Zuckerberg is planning to spend $10 billion to $15 billion per year building out the metaverse.
Ralph Lauren is in our Red Zone, but we can find other opportunities within the metaverse by looking at the holdings in the ProShares Metaverse ETF (VERS). One notable position in VERS is Vicarious Surgical Inc. (RBOT), whose technology allows a surgeon from hundreds of miles away to use a motorized robot to operate on a patient.
As inconceivable as it sounds, one day, you may be able to visit a metaverse hospital, book an appointment, find a physical location for the surgery to be conducted, and have a surgeon operate on you from another part of the country.
While RBOT is in the Green Zone, it’s also important to know yourself as an investor before buying any shares, because this company still has a way to go.
It may be well into 2024 before Vicarious is ready to file permission to market its surgery robots, and if you consider yourself a conservative or moderate investor, RBOT may be better suited for a watchlist than your actual portfolio.
Vicarious reported a net loss of $19.1 million in Q2 and has a sky-high Volatility Quotient (VQ) risk level of 51.06%.
The company plans to report Q3 results today after the closing bell.
Snippet No. 2: The Real Indulgence StockOverview
In its latest earnings report, Mondelez International Inc. (MDLZ) raised its full-year organic net sales growth forecast to 10% from its previous estimate of
Mondelez is the maker of Triscuit crackers and Oreo cookies, and the management team found that consumers consider snacks like these to be “affordable indulgences” during a time of higher food costs.
Because of the demand for those products, Mondelez says it plans on raising prices in December and in 2023.
Sales for the company rose to $7.76 billion from $7.18 billion in the same period the previous year, but net income was $533 million, less than half of last year’s total of $1.2 billion.
The TradeSmith Takeaway
When running Mondelez through our Health Indicator, it comes back in the Red Zone, making it a stock to avoid. It also poses medium risk with a VQ of 16.6%.
But even in an environment where everyone is more heavily scrutinizing where each dollar they’re spending is going, people do find room for affordable indulgences. Recently, our friends over at LikeFolio talked about the Lipstick Index, a concept coined by Leonard Lauder (then chairman of Estee Lauder Companies) during the 2001 recession.
The idea is that during difficult economic conditions, beauty product sales climb because people treat themselves to little luxuries like lipstick or perfume instead of big-ticket items like cars, high-end clothes, or vacations. E.l.f. Beauty Inc. (ELF), a seller of makeup and skincare products, is benefiting from that theory.
It reported earnings on Nov. 2, sharing that sales climbed 33% and that it was bumping up its 2023 fiscal sales expectations by $30 million.
While still considered a high-risk stock, with a VQ level of 35.80%, ELF is in our Green Zone and LikeFolio has given the stock a Bullish rating.
Snippet No. 3: Coinbase Inc. (COIN) Users DisappearOverview
Coinbase reported that its monthly transacting users totaled 8.5 million in Q3, down from 9 million the year before.
In addition to the drop in users, retail transaction revenue plunged to $346.1 million from $1.02 billion the previous year.
The company also reported $590 million in total revenue, and as you may have guessed by now, it underwhelmed analyst expectations of $654 million.
The TradeSmith Takeaway
With the price of Bitcoin (BTC) dropping 57% this year, it’s not surprising that fewer people are trading on Coinbase and that revenue is down.
And with Coinbase being an on-ramp for many crypto investors, it helps provide a pulse for the current state of the market.
An investment viewed as “fast money” will always attract certain people who don’t stick around when things start to get tough, and these kinds of troughs are just part of the crypto investing space.
And even though the crypto market is young, there is still a well of data that can tell us what to expect next.
In its Q2 report, Coinbase said there have been four major cycles since 2009, with the rise and fall of the price of BTC during these cycles lasting up to four years. The green lines in the chart below represent peaks in price, and the red lines represent troughs. The BTC price declined from its peak by 94% in Cycle 1, 85% in Cycle 2, 84% in Cycle 3, and 74% in Cycle 4.
But as you can see from the green lines (peaks) in the chart above, every trough has brought on new all-time highs for Bitcoin.
And with 2023 on the horizon, our team turned to our in-house expert, Senior Crypto Analyst Joe Shew, to make sense of all this and share what’s ahead for crypto investors and the crypto-curious alike.
You’ll be hearing more from Joe in the weeks ahead.