Two video game digital dominators are teaming up, and the investment impact will be huge.
On Monday, Sony (SONY) executives announced that the firm will invest $1 billion in video game megastar Epic Games.
Investing in a popular game development platform was supposed to strengthen Sony's metaverse portfolio and help it compete with metaverse-minded Meta Platforms (FB).
Yet Sony shares are down around 13% so far this week as of writing.
In the past, I've talked about why Meta (named Facebook at the time) would win the multiverse.
That still appears to be true ... but it's also true that Sony shares look attractive in this current weakness.
Always do your own due diligence, but here's why …
SONY & Meta Platforms Are Compatible Pals
A metaverse is where you can interact digitally and transition between shopping, working, gaming and socializing on the same platform.
Sounds a lot like Meta, right?
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It did … until investment bankers and technology companies that are financing and building virtual worlds came to blame its CEO Mark Zuckerberg for killing the buzz around the metaverse.
Despite the controversy, there's no denying Zuck is a bright guy.
Facebook's growth through the 2000s speaks to his business acumen.
However, he's been making a lot of enemies in Washington and on Wall Street recently.
And speaking of Wall Street, despite what you're hearing, the fat cats are scared, and the warning signs are flashing. My colleague Sean Brodrick gave me the inflation scoop, and he detailed strong ways to fight back. I would love for all my readers to check this out while it's available.
Lawmakers want to regulate Zuckerberg's platforms, and investment analysts have been uniformly negative.
When Zuckerberg began talking about this new virtual world, it wasn't long before the naysayers showed up.
They quickly portrayed the metaverse as a goofy online world with silly avatars, adult malcontents and dim business prospects.
Except … that is not what the metaverse is, nor what it will be.
People are naturally social. They gravitate to new technologies that speed social interaction.
A Next-Level Opportunity
YouTube was bought for $1.6 billion in 2006 by Alphabet (GOOGL). Most analysts thought the money was wasted.
What they missed was that YouTube was becoming a platform for people to congregate and exchange ideas.
Today, the video platform is crucial to educators, brands and influencers. It's a $60 billion business annually.
Now, YouTube is bigger than Netflix (NFLX) … and growing faster.
The metaverse has the potential to be even bigger than YouTube, with a better business model.
At its core, Epic Games is really a software development business. Its powerful Unreal Engine (UE) is AI-based code capable of rendering photorealistic images, animation and physics in real time.
Creators have been licensing this software since 1998 to quickly build games and even produce photorealistic content for TV and films.
Metaverse Makes Way to Mainstream
Epic debuted "Fortnite: Battle Royale" in 2017. The free-to-play online video game platform was built around UE, and multiplayer franchises quickly stretched the limits of gameplay.
"Fortnite" became a platform unto itself. Players could meet up, communicate, play together and even buy virtual goods and services. "Fortnite" became a metaverse. And it's an extremely big business.
During 2021, "Fortnite" logged $43.7 billion in sales and 350 million online players. The platform hosted a virtual concert in 2020 for Travis Scott, one of the biggest stars in hip-hop. Given what tragically happened at the Astroworld Festival last year, it's easy to see the incredible influence the game is having in real life.
It's not hard to see why Sony is attracted.
Sony Will Be Scorching
The Sony PlayStation is the most popular video game console platform in the world.
Making sure UE works well with PlayStation is important ... yet the real juice for Sony is collaborating with Epic on future businesses.
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Digital fan experiences and virtual production for Sony Pictures — its film studio — can move online. Selling tickets inside the metaverse is a new business vertical. It's a big idea, and it will absolutely work. The success of "Fortnite" is proof.
Unfortunately, the metaverse story is currently broken with investors. They don't get it because it's being portrayed as some Zuckerberg fantasy.
At a price of $90.70, Sony shares trade at only 15.2 times forward earnings and 1.5 times sales.
Again, always do your own research, but shares look attractive in this current weakness.
Best wishes,
Jon D. Markman
