Tech Giants Eye Shared Virtual Spaces as the Next Big Thing

Facebook and Roblox Invest in the Metaverse

Facebook (FB), Roblox (RBLX), Microsoft (MSFT), and Match (MTCH) are eyeing what could be the next big thing of online growth: a virtual reality where people exist in shared spaces. In this virtual world, which is being referred to as a metaverse, people interact through avatars, attending concerts with their digital friends and shopping in virtual stores as if they were in the physical world.

Investor interest in this new realm is one of the reasons Roblox has such a lofty valuation. Backers are betting its popular video games will give it an early advantage in the burgeoning market. Roblox, which went public through a SPAC deal in March, has a market capitalization of more than $43 billion.

Roblox and Facebook Double Down on Shared Virtual Reality

Roblox is investing heavily in shared virtual realities, both on the development and staffing sides. It sees its platform as a hub for shared virtual experiences, from concerts to school events to meetings. The challenge for Roblox is creating shared virtual spaces that are safe for a six-year-old but attractive to a 30-year-old, since it can be hard to control who enters what spaces.

Facebook is also pouring investment dollars into virtual reality and augmented reality. The company sees the metaverse eventually replacing the mobile internet. In Facebook’s vision, users will be able to access the metaverse from smartphones, PCs, laptops, and a new crop of VR devices. Both companies see the evolution of the meterverse as something which will take a number of years, but which has the potential to revolutionize online interactions.

Market Still in Its Infancy

In order for the market to take off, companies will need to figure out how to generate revenue from these shared virtual spaces.

Roblox makes money when its users buy virtual currency. The currency then gives customers access to items for their avatars, or in-game bonuses. Roblox leverages this in a number of ways. For example, last spring the company teamed up with Gucci (PPRUY) to celebrate the fashion brand’s 100th anniversary. Roblox users could purchase limited-edition Gucci items for their avatars.

The metaverse is still in its infancy, but technology companies are eyeing it as the next big thing. It will be interesting to see how metaverse technology changes the tech industry and how everyday people interact online.

Credit Card Utilization: What You Need To Know

The world of credit scores can make your head spin, but what we know for sure is that credit card utilization plays a big role in how companies compute your credit score. In fact, about 30% of your credit score is determined by your credit card utilization rate. That means a high credit card utilization rate can adversely affect your credit score.

The general guideline is that you should not exceed a 30% credit card utilization rate. Track your credit score for free in the SoFi app, where the factors affecting your score are broken out to make them easier to understand.

Emerging Markets

A Weekly Column With Liz Young

Every week, SoFi’s Head of Investment Strategy shares her economic and market insights in order to help empower readers to take a more active role in their financial futures. This week, see what Liz has to say about emerging markets.

The Weight

With headlines about the spreading Delta variant, softening data in China, and civil instability in the Middle East, I thought this week would be a good opportunity to write about markets outside the US, namely emerging markets (EM), and delve into some recent patterns.

Perhaps the most dominant force on returns in EM indices or portfolios is the weight of each country in the index, but the title, above, also refers to the weight of geopolitical tensions and emerging markets’ less liquid and more concentrated capital markets.

Take a Load off China

As of July 31st, China made up 35% of the MSCI Emerging Markets Index. The next two largest weights are Taiwan at 15% and South Korea at 13%. That’s 63% of the index in three countries, all of which are in Asia. The other 37% is distributed across the 24 remaining countries.

To state the obvious here: any emerging market investment that tracks the index is going to be heavily influenced by a small number of countries and/or dependent on a particular region. This presents concentration risk and makes the investment more sensitive to the volatility that could arise in any one spot.

For example, over the last year, the MSCI EM index returned 13%, but with China removed, the index was up 30% over the same period. More specifically, a large portion of China’s poor returns over that year have occurred in the last 45 days. A double-digit difference in returns resulted from one country, which is something that could catch an investor off guard if they’re not aware of how dependent the index is on certain drivers.

Bottom line: know what you own and know if and where it’s concentrated. EM returns can turn on a dime and the volatility is not for the faint of heart.

Caught in the Fog

Also fogging up the window into emerging markets is the effect that geopolitical forces can have on particular EM companies. Much like Apple has a strong influence on US indices, Asian technology companies dominate the EM index, and many suffered as a result of China’s recent regulatory crackdown.

No market is immune to geopolitical shocks, but emerging markets are more sensitive and in some cases more controlled by governing bodies. What this means is that analysis of an emerging market investment has to include factors such as how easy capital flows into and out of the country, the level of economic development that’s present, size and liquidity of the market(s), and the geopolitical forces that could meaningfully change the investment outlook.

Hire the Band

That said, no risk, no reward—and emerging markets can be an important piece of a well-diversified long-term investment portfolio by offering interesting return opportunities. But this is a space where I would recommend using an actively managed investment vehicle like an exchange-traded fund (ETF) or mutual fund where there is an added layer of research on the investments that should theoretically reduce some of the risks mentioned above. Investing is all about taking the right kind of risks and being careful not to expose yourself to the ones that could have been avoided.

In case the title theme of this piece wasn’t obvious to everyone—one of my favorite songs is “The Weight” by The Band.

Gas Prices Recede and Oil Refinery Companies Benefit

Demand for Gas Gives Refiners a Boost

Oil refinery companies including Marathon Oil (MRO) and Valero Energy (VLO) are benefiting from declining oil prices and summer road trips. The same cannot be said of their oil-producing counterparts, which have been under pressure as crude prices recede.

Between China instituting pandemic restrictions to curb the spread of the Delta variant and OPEC and its partners increasing supply of oil, crude prices have been falling. Prices for US crude are off more than 10% from their high set earlier this year. Refiners make money when the prices for gas are more than what they pay for crude, which is currently the case.

Marathon Makes a Profit

Refiners transform crude into fuel for heating and transportation, and into petrochemicals for products including asphalt. When they are making more money, they tend to increase production, which drives demand for crude. In July, refiners were running at about 90% capacity which is more capacity than last year. Refiners have been benefiting from an increase in road trips during the summer months, which drove the price of gas at the pump to over $3.15 per gallon.

In the second quarter, Marathon posted $751 million in profits from its refining unit. In last year’s second quarter Marathon had a loss of $919 million. Meanwhile, Valero posted a profit in its second quarter after losing money in the second quarter of last year.

Refiner Stocks Underperform

Despite their improving bottom lines, investors have generally not been very enthusiastic about refiners’ stocks. Aside from Marathon, which is up 38% this year, rivals have languished. Phillips 66 (PSX) is flat so far this year while Valero Energy’s 12% gain is underperforming the S&P 500. A big reason why the stocks are not rallying is the increase in renewable-energy costs refiners face. This includes renewable identification numbers, which are credits refiners purchase if they do not meet green mandates.

With summer travel coming to an end, the spread between gas and crude prices should start to narrow. But demand is expected to remain strong as we head into the fall and winter, so refiners should still benefit in the coming months.