As Meta Platforms (META 0.85%) (formerly Facebook) continues to invest in the metaverse, would acquiring Roblox (RBLX -1.39%) fit with its plans? Motley Fool analyst Asit Sharma tackles that question and weighs in on the results from Cyber Monday and the stock market uncertainty caused by the omicron variant.
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This video was recorded on Nov. 30, 2021.
Chris Hill: It's Tuesday, Nov. 30. Welcome to MarketFoolery. I'm Chris Hill, with me today, the one and only, Asit Sharma. Thanks for being here!
Asit Sharma: Chris, I'm surprised you keep having me back, but I'm definitely glad to be here.
Hill: We've got Cyber Monday's report card. We have a question about Meta Platforms, but we should probably start with the word that everyone has learned in the past week and that is omicron. I hope I'm pronouncing that correctly. This is the new variant of COVID and you and I were chatting this morning. We are at the point and I say we collectively, the investing community, we're at that point where nobody is really sure what's going on. But everyone is trying to figure out what this means. We've got scientists saying, give us a couple of weeks to compile some data and we're going to have more information for you, but a lot of us don't want to wait that long. I was reminded of the fact that the old adage, the market hates uncertainty, really holds up. Because there's a lot of uncertainty in the market and everybody hates it.
Sharma: It's such a place we've come to after all these months. It almost feels like we could be back to square one and that certainly is driving up that uncertainty. I would say some fear factor as well. In the markets, the market does hate uncertainty and you can't get any more tantalizing than this, the prospect that we could get over the finish line, finish out this year. Basically in recovery mode, maybe cruising toward that 3.5% GDP growth that the World Bank forecast for the planet next year and here we've got this last-minute [LAUGHTER] bump in the road, or I should say, last hurdle in front of us before we finish this year, which could turn into something more meaningful. That's a real recipe for stocks to lose their marbles, which they did just before we came into the weekend after Thanksgiving and again, I see today, stocks are seesawing and I should say here, they're down. I saw something like 500 points on the Dow. But this is to be expected, there's no road to recovery after something like a global pandemic that's smooth andcertain. I wonder though what will happen if we revert to a state where we have to go into lockdowns again, I know Europe is already exploring this. The flights from South Africa we read about that were shutdown are also of concern. Chris, I don't know what to say here except focus on the stocks. I feel like that mantra always helps our investors find those great companies, hold them through volatile times. But it certainly is a new reckoning that is in front of us for the next couple of weeks anyway.
Hill: Well, if you're looking for silver linings where we're not either as a country or as a planet where we were in the spring of 2020, we have vaccines. We know a lot more collectively so in terms of the stocks, I don't know. I see a couple of people here and there who are saying, "Well, let's go back to the stay-at-home stocks." I just look at that and I think is that really the move here? It's not to say that there aren't some great long-standing businesses with potential to hold for the long term, but I don't know. I don't look at this just as we're not in the same place we were in the spring of 2020 from a public health standpoint, I don't think we're in the same place we were from an investing standpoint, either. I'm not expecting the same type of drop and I'm not expecting there to be this obvious group of well all of a sudden we should, people who were bearish on Peloton (PTON -3.38%) should just completely change their thinking.
Sharma: I so much agree. This is a time for orderly thinking and it's a time to evaluate information as we get it. But frenzied capital always has to have somewhere to go, so if there's some type of exogenous shock to the market, the frenzy capital has to quickly jump into the place where it thinks it can make a buck before the next quarter ends and that knee-jerk reaction turned out to be these work-from-home stocks. I've noticed even during the trading sessions yesterday, today you can see the movement going in and out of these stocks as some of this data changes, some will opine that the symptoms of the omicron variant are milder and you can almost see this reflected in how stocks are moving, which is no way to invest. It's may be a great way to trade, but as investors we have to figure out again what is going to work for us over the long term. Some of those work-from-home stocks are still great buys regardless what happens in the near term with a virus variant. But no need to go rushing about trying to find a place to dump money. I think as you were alluding to earlier, it's better just to wait, to be patient as we get more data in and then make some nice decisions, some crisp decisions.
Hill: Let's move onto retail because the headlines both from Black Friday and Cyber Monday included the word first. From the standpoint at least in the case of Cyber Monday, it's the first time ever that we had a drop in spending on Cyber Monday, Black Friday, dipped ever so slightly from a year prior. As someone who watches the retail industry pretty closely and is invested in it, this is one big shrug of the shoulders for me. I look at this and I'm like, "I get why the headlines are being written that way." But does anyone really think the retail industry is troubled as a result of that?
Sharma: I have to agree with you here and want to remind listeners. There was a time not so long ago where if someone had said the phrase Cyber Monday, you might have thought does that mean that I'm going to rent the movie Blade Runner next Monday [LAUGHTER] and watched that with some friends. Now why would you be doing that on a Monday night? As this thinking comes out of my head. But here we are. We have to fixate on something. The Cyber Monday online sales drop headline is 1.4% less than sales last year. Both you and I read this morning that there's some explanation for this and that consumers are spreading out their spends from Black Friday to Cyber Monday and indeed this whole week, as retailers become more and more ingenious and spread out their own offers. Part of this is just not hanging your hat on one single day to bring in the sales and realizing that there is a cadence and a real rhythm to this whole cyber sales exercise. Now, we could also say that there is little warning signs here in the tea leaves in that inflation is up so people are pulling back a little bit, uncertainty that's caused by new variants.
The novel coronavirus certainly can contribute a little bit to that so we really won't know the upshot of these patterns of spends until this whole season is over. We have to get through actually the Christmas season as well to make an assessment. Chris, I see a pattern beginning here is the rush to make judgments, to take action, to move capital, to make decisions, or have instant analysis. Again, whether you're investing in the broader market or the retail sector, it just doesn't happen that quickly. Now, a great time to think about all this will be in January. If you are an avid investor in companies that we talked about on the show, like Best Buy (BBY 0.83%) or, or Amazon (AMZN -0.03%), I think January will be the appropriate time to take stock and understand what this whole season has meant for your favorite companies' results and what that means going forward.
Hill: I love the reports we get in January from the major retailers in part because it's one more way in a relatively short amount of time for us to evaluate management. Now in the case of Walmart (WMT 0.21%) and Target (TGT -0.65%), we have experienced CEOs who have been leading those companies for years so Doug McMillon, Brian Cornell, I think if you are an investor and you're paying attention, you have a very good sense of two people who aren't going to say things they don't have a high degree of confidence of. But for other retailers, again, it's a great chance to be like let's go back to what they were saying in November and December in terms of what they were doing for seasonal hiring, what they were saying about their own supply chains. In the case of Walmart and Target, with the most recent earnings, both Cornell and McMillon, we're saying no, we're good. Our shelves are stocked, we're good and not to say that they get a blank check forever, but it will be surprising if for some reason we get to January and those two in particular come up short in terms of what they've got in the holidays.
Sharma: I agree. I mean, they represent probably the peak of planning and strategy and we look to them for cues on how the sector at large is evolving to understand what an omnichannel strategy will look like in 2022. There's so much to be gained from listening to those two CEOs. But there, again, you have the difference between trying to understand a few layers and the bigger picture versus trying to take a headline and run with it. But of course the new sites have to sell the news and it's a good headline for the financial web.
Hill: Our email address is [email protected] Got a question from Bill Nielsen, who asked, "Is there a chance that Mark Zuckerberg would buy Roblox since it is one of the major players in the current level of metaverse? Roblox already has a lot of numbers and continues to add. It would provide an early place to reach people who are already involved with the concept and bringing them into his advanced level." There are a few places I want to go with this, but let's just start with the question as Bill laid it out there. Roblox is at the moment a $71 billion company. This would be a not-insignificant acquisition if, and I have to remind myself that it's the name of the company is now Meta Platforms. If Meta Platforms, formerly Facebook, were to make an acquisition of Roblox, it's a decent chance it's not going to be 71 billion, it's going to be closer to a 100 billion. But is that something that Meta Platforms shareholders should be hoping for?
Sharma: It's an intriguing question from the listener. I just want to make a quick comment here to your point, Chris, this would have to involve some combination of cash, stock since Roblox already is so big. Of course, Meta Platforms aka Facebook is near a trillion bucks in market capitalization. They could certainly trade enough stock to make the deal happen. It is hard to figure out what is in Mark Zuckerberg's mind. He has invested in the hardware component of this space for many years. He is pouring tens of billions of dollars more into this investment, hiring thousands of engineers globally to push also into the nonhardware or software aspect of this space. Facebook has communicated that they don't want to create the metaverse, and be the owner of a single space. I think they're just trying to allay fears that many of us have, and also keep the people who are always looking to break up big tech at bay by saying that, I think if eventually Facebook did have a dominant platform, which was the biggest expression of the metaverse, they would be quite happy with that. In some ways, Roblox already represents where Facebook wants to go. I remember Facebook had a few clumsy tweets after Mark Zuckerberg's big Metaverse presentation, where they were adding different retailers. What is your space going to look like in the metaverse? Funny, Roblox already has this.
One of the biggest brands on the planet, Nike (NKE -1.28%) is teaming up with Roblox. Roblox is essentially a gaming site that young kids who are typically between the ages of 6 and 16 goes to play games, and build worlds. But it also has this really amazing experiential aspect to it. People can go, and basically create their avatars, and have meetings in this space, attend concerts, do all kinds of fun things. Roblox's already the expression, fun expression of the metaverse that Facebook, I think would like to see itself creating. This is why the listener's question is so intriguing. Why don't they just buy Roblox? We know that Meta Platforms when it was Facebook was not averse to taking some big bets. Mark Zuckerberg put billions into Instagram and WhatsApp, and at the time, those acquisitions look really bold, an outsized, they make a lot of sense now to the business model. It wouldn't be unusual for Facebook to pour capital here. I just question whether Facebook really wants to swap a smaller competitor when it's got such a seemingly specific idea of what it wants to do. It's already signaled this huge investment over the next several years. I wish I could give a better answer. My gut feeling is that Meta Platforms just isn't interested in Roblox right now because it wants to create its own version of the metaverse. But if I were an executive on that team, what I would look at that as the possibly really keen strategic acquisition. I would, but I'm not on their management team.
Hill: Is Roblox attractive enough as a business? Even keeping in mind that it's a $71 billion company, is it attractive enough that someone could look to buy them? Or do you think by virtue of its size, that it would be a very safe bet that they're not going to get acquired? Because I know there are a lot of people who really love that business. There are shareholders who love being shareholders. Look, sometimes when you're the shareholder and the company is a little smaller, part of you is thinking, this is a great business. I hope it doesn't get acquired. I want it to run on its own. I'm wondering if Roblox shareholders can breathe easy knowing that the bigger that company gets, the less likely it is that an Alphabet (GOOG 0.79%) (GOOGL 0.86%) or a Microsoft (MSFT 1.00%) comes in, and says, "Here's a check with more zeros than you can possibly imagine, and we'll be taken the keys to the car."
Sharma: If you're an investor, you're hoping that the few big companies that could pull off an acquisition of Roblox are looking in other directions. This is a company however, that at least it's going to attract some attention by potential buyers who want to extend their footprint in the metaverse space. We should say that companies like Microsoft themselves are already creating their own expressions of the metaverse, which are now a little business-to-business centric. Same could be said for Nvidia (NVDA 3.12%), the chipmaker. But here you have a consumer expression. The metrics are very interesting. Chris, average daily active users in quarter three for Roblox were 47 million people. They had an amazing number of hours of engagement, 11.2 billion hours of engagement on this platform, which increased almost 30% year over year in the third quarter. The numbers are there. This platform is widespread, it's ubiquitous. It's got a bigger and more engaged user base than many people realize who haven't looked at the business since it came public. There is something here for a savvy investor that believes they can take a free-cash-flow-positive company with really wonderful customer metrics that is drawing, attracting interest to the metaverse space and then take it to the next level. But I see your point though for Roblox shareholders, you hope that no one's paying attention.
Hill: Reminder that tomorrow, Dec. 1, is when Meta Platforms changes its ticker symbol. If you're a shareholder, today's the last day, you're going to see the letters FB in your portfolio tomorrow, Dec. 1, it becomes MVRS, so don't freak out when that happens. [Editor's note: Meta Platforms pushed backed changing the company's ticker symbol to 2022.] Asit Sharma, great talking to you. Thanks for being here.
Sharma: Thanks so much, Chris. A pleasure, always.
Hill: As always, people on the program may have interest in the stocks they talked about and The Motley Fool may have formal recommendations for or against. Don't buy or sell stocks based solely on what you hear. That's going to do it for this additional MarketFoolery. The show's mixed by Dan Boyd. I'm Chris Hill. Thanks for listening. See you tomorrow.