Tencent Defies Regulator Warning with Metaverse Patent Application

Key Insights:

  • Tencent goes deeper into the Metaverse with new patent applications for virtual concerts.
  • In 2020, Tencent bought a stake in U.S virtual concert platform Wave in a bid to dominate the virtual concert stage.
  • Chinese regulatory scrutiny could leave the Chinese music industry in the wake of Metaverse-friendly nations.

Over the last few months, the Chinese government and the People’s Bank of China (PBoC) have been critical of NFTs and the Metaverse. The shift in focus follows last summer’s ban on Bitcoin (BTC) mining.

A marked increase in NFT activity and interest in the Metaverse has forced Chinese conglomerates to make a move despite condemnation from the government and the PBoC.

China Giant Tencent Files Metaverse Patent Application

This week, Chinese tech giant Tencent reportedly filed a patent for virtual concerts. The virtual concerts patent application follows China’s first virtual concert on 31st December. Tencent held the “TMELAND” concert in the Metaverse to ring in the New Year. A reported 1.1m fans saw the New Year concert.

 

Immensely successful, Tencent continues to ignore the warnings of the Chinese government and the PBoC. Looking to diversify away from China, Tencent Music acquired a stake in Wave in late 2020. Wave is an LA-based virtual concert platform.

Past Waves include Justin Bieber, Pentakill, Dillon Francis, The Weeknd, and John Legend.

Patent Applications Come Despite Government Warnings

NFT and Metaverse-related trademark and patent applications have continued to surge in China. The surge comes despite a jump in illicit activity and government warnings.

In December, we reported that the PBoC clamped down on NFTs and the Metaverse using AML tools. The PBoC’s AML unit sees virtual assets as a pathway for illegal activities facilitated by the isolated nature of NFTs and metaverse-based items.

Just over 100 companies had registered for trademarks related to the Metaverse before a late 2021 surge. In addition, more than 1,300 Chinese companies reportedly filed for trademarks by late December. Other major Chinese companies filing for trademarks included Huawei Technologies, NetEase, and Hisense.

Since December, firms have not let up. By mid-February, a reported 16,000 trademark metaverse-related applications were pending approval in China. This was up from just under 9,000 in mid-December.

Whether China’s regulator approves all 16,000 remains to be seen. With competition rife, however, China could fall behind should the likes of Tencent receive a cold shoulder at home.

Wall Street Week Ahead Earnings: Caesars Entertainment, Home Depot, Lowe’s and Moderna in Focus

Investors will focus on December quarter earnings for stocks that are economically sensitive, which should show better profits than technology stocks. Increasing Treasury yields and risk aversion could hit the stock market hard over the coming months. In addition, investors will closely monitor the latest news on the rapidly spread Omicron coronavirus variant to see how it impacts earnings in 2022.

Earnings Calendar For The Week Of February 21

Monday (February 21)

The New York Stock Exchange and NASDAQ will all be closed on Monday, February 21 for President’s Day.

Tuesday (February 22)

IN THE SPOTLIGHT: CAESARS ENTERTAINMENT, HOME DEPOT

CAESARS: The largest casino-entertainment Company in the U.S. company is expected to report its fourth-quarter loss of $-0.71 per share, up over 58%, better compared to a loss of $-1.7 per share seen in the same period a year ago. The Las Vegas-based company would post revenue growth of over 77% to $2.58 billion.

Caesars Entertainment (CZR) is currently trading at below its historical NTM multiple on 2023e EBITDAR, despite our expectation of >1,000bps higher core casino margins and faster growth. We believe regional casino markets (55% of mix) have structural tailwinds from customers acquired post-COVID and sports betting legalization,” noted Thomas Allen, equity analyst at Morgan Stanley.

“We expect CZR to improve its sports betting / iGaming market share in coming qtrs, a key driver to Gaming stocks in recent years. High leverage now (7.5x at YE21) but significant FCF and a planned Vegas asset should drive leverage to ~5x by YE22, opening up a broader investor base.”

HOME DEPOT: The largest home improvement retailer in the United States is expected to report its fourth-quarter earnings of $3.22 per share, which represents year-over-year growth of over 17% from $2.74 per share seen in the same period a year ago.

The home improvement retailer would post revenue growth of over 7% to $34.6 billion. The company has beaten consensus earnings estimates in most of the quarters in the last two years, at least.

“We are Overweight Home Depot (HD) given its best-in-class nature and structural housing tailwinds beyond N-T disruption from COVID-19. The stock seems attractively valued in the context of a potential 2021/2022 economic/housing boom,” noted Simeon Gutman, equity analyst at Morgan Stanley.

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE FEBRUARY 22

TICKER COMPANY EPS FORECAST
CNP CenterPoint Energy $0.33
HR Healthcare Realty Trust $0.44
HD Home Depot $3.22
M Macy’s $1.91
MDT Medtronic $1.38
PANW Palo Alto Networks $-0.42
TOL Toll Brothers $1.26

 

Wednesday (February 23)

IN THE SPOTLIGHT: LOWE’S

Home improvement retailer Lowe’s is expected to report its fourth-quarter earnings of $1.69 per share, which represents year-over-year growth of over 27% from $1.33 per share seen in the same period a year ago. The company that distributes building materials and supplies through stores in the United States would post revenue growth of over 2% to $20.82 billion.

“We view Lowe’s (LOW) favourably given its longer-term transformation opportunity and structural industry tailwinds, with substantial near-term uplifts from COVID-19 spending shifts that likely translate to longer-term sales retention,” noted Simeon Gutman, equity analyst at Morgan Stanley.

“Assuming a healthy underlying housing backdrop, we think comps can accelerate longer-term from stronger sales/sq ft trends, driven by e-comm accelerating, better in-stocks, product refreshes/exclusive launches, greater traction with Pro initiatives, and removing friction from the customer shopping experience. Combined with productivity initiatives, this should enable EBIT margin expansion going forward.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE FEBRUARY 23

TICKER COMPANY EPS FORECAST
BBWI Bath & Body Works $2.25
BCS Barclays $0.29
EBAY eBay $0.82
HEI Heico $0.57
NTAP NetApp $1.07

 

Thursday (February 24)

IN THE SPOTLIGHT: MODERNA

Moderna, the biotech company focused on drug discovery, is expected to report its fourth-quarter earnings of $8.62 per share, which represents year-over-year growth of over 1,340% from a loss of -$0.69 per share seen in the same period a year ago.

The Massachusetts-based biotechnology company would post revenue growth of 1,075% to around $6.71 billion.

“We are Equal-weight Moderna. While we believe there is long-term upside for Moderna, we believe the significant valuation increase associated with the success of the COVID-19 vaccine limits the near-term upside,” noted Matthew Harrison, equity analyst at Morgan Stanley.

“The company has taken an industrialized approach to developing mRNA based therapeutics and has rapidly generated a broad pipeline of 21 programs, 11 of which have entered clinical development. We believe Moderna’s mRNA drug development platform is more diversified and scalable compared with competitors, and is validated through broad partnerships with Merck and AstraZeneca. We see vaccines and rare diseases as the key valuation drivers of the company.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE FEBRUARY 24

TICKER COMPANY EPS FORECAST
ADSK Autodesk $0.89
AXON Axon Enterprise $-0.07
SQ Block $-0.06
CVNA Carvana $-0.76
DELL Dell Technologies $1.94
DISCA Discovery $0.84
GCI Gannett $-0.03
NTES NetEase $0.82
NKLA Nikola $-0.46
VMW VMware $1.44
ZS Zscaler $-0.57

 

Friday (February 25)

TICKER COMPANY EPS FORECAST
AES AES Corp. $0.46
CNK Cinemark Holdings $-0.16
DSX Diana Shipping $0.30
SSP E.W. Scripps $0.46
FL Foot Locker $1.46

 

South Korean Regulators Look Beyond Borders as Regulators Widen the Net

It’s just the beginning of the year and regulators are looking to build on the momentum from late 2021. In December, the Bank of England had talked of the need for a global framework to regulate the crypto market.

Since the BoE’s December Financial Stability Report, which highlighted crypto market risks to global financial stability, both regulator chatter and action have been on the rise.

In the New Year, news hit the wires of Indian authorities searching 6 crypto exchanges on the suspicion of tax evasion. One of the exchanges was Binance-owned WazirX.

Crypto Regulatory Activity Builds

Binance has also been in hot water with regulators in recent weeks. Just last week, Binance got on the wrong side of the Ontario Securities Commission. A reported miscommunication came following a Binance decision to withdraw its application for a Singapore license. Reportedly, Binance failed to meet the Monetary Authority of Singapore’s AML and KYC requirements.

Other governments are also clamping down as trading activity rises. Away from trading activity, governments are also looking at NFTs, the Metaverse, and more.

In December, the People’s Republic of China was back in the news, this time in relation to the Metaverse. Momentum has been building, however, with the Chinese firms Huawei Technologies Co, NetEase, Tencent, and Hisense amongst firms applying for metaverse-related trademarks.

It remains to be seen whether approvals are forthcoming. The PBoC’s AML unit reportedly views virtual assets as a pathway to illegal activity, facilitated by the isolated nature of NFTs and metaverse-based items.

When considering the heightened regulatory chatter, it’s a natural progression for other regulators to step forward.

South Korea Breaks Down Crypto Boundaries

Today, news hit the wires of South Korea’s Ministry of Economy and Finance introducing new laws in relation to crypto holdings.

Residents with overseas deposits of more than 500m Korean Won need to notify their jurisdiction tax director of their holdings. This is a capture-all, with residents also needing to disclose crypto assets. At 2023, a 20% virtual assets income tax will reportedly come into effect.

It’s one more hit for the crypto market that has faced harsh measures from China and other governments. The South Korean government’s latest move is not to ban crypto trading but is likely to impose measures to reign in cavalier crypto trading activity.

Interestingly, the news coincided with Samsung’s move into the NFT space.

Market Reaction Muted

At the time of writing, there was little reaction to the news. Bitcoin (BTC) was down by just 0.13% to $47,244.

BTCUSD 030122 Daily Chart

For more seasoned investors, however, 2018 and the global regulatory clampdown may bring into question the bullish sentiment towards 2022.

NetEase Stock Takes in The Big Money

So, what’s Big Money?

Said simply, that’s when a stock goes up in price alongside chunky volumes. It’s indicative of institutions betting on the shares.

Smart money managers are always looking for the next hot stock. And NetEase has many fundamental qualities that are attractive.

This sets up well for the stock going forward. But how the shares have been trading points to more upside. As I’ll show you, the Big Money has been consistent in the shares all year.

You see, fund managers are always looking to bet on the next outlier stocks…the best in class. They spend countless hours sizing up companies, reading reports, speaking to analysts…you name it. When they find a company firing on all cylinders, they pounce in a big way.

That’s why I’ve learned how critical it is to gauge Big Money demand for shares. To show you what I mean, have a look at all the big money signals NTES has made the last year.

The last few weeks have seen Big Money activity, too. Each green bar signals big trading volumes as the stock ramped in price:

Chart, histogramDescription automatically generated
Source: www.mapsignals.com

In 2021, the stock has attracted 9 Big Money buy signals. Generally speaking, recent green bars could mean more upside is ahead.

Now, let’s check out technical action grabbing my attention:

  • 1-month outperformance vs. Technology Select Sector SPDF Fund (+12.57% vs. XLK)

Outperformance is important for leading stocks.

Next, it’s a good idea to check under the hood. Meaning, I want to make sure the fundamental story is strong too. As you can see, NetEase has been growing sales at a double-digit rate. Take a look:

  • 3-year sales growth rate (+11.9%)
  • 3-year earnings growth rate (+49.6%)

Source: FactSet

Marrying great fundamentals with technically superior stocks is a winning recipe over the long-term.

In fact, NTES has been a top-rated stock at my research firm, MAPsignals, for years. That means the stock saw buy pressure, strong technicals, and growing fundamentals. We have a ranking process that showcases stocks like this on a weekly basis.

NTES has a lot of qualities that are attracting Big Money. And since 2015, it’s made this list 34 times, with its first appearance on 4/13/2015… and gaining 339.35% since. The blue bars below show the times that NetEase was a top pick since 2015:

Chart, histogramDescription automatically generated
Source: www.mapsignals.com

It’s been a top stock in the technology sector according to the MAPsignals process. I wouldn’t be surprised if NTES makes additional appearances in the years to come. Let’s tie this all together.

The Bottom Line

NetEase rally could have further to go. Big money buying in the shares is signaling to take notice. Shares could be positioned for further upside. Given the historical gains in share price and strong fundamentals, this stock could be worth a spot in a growth-oriented portfolio.

Disclosure: the author holds positions in NTES in personal and/or managed accounts at the time of publication.

Learn more about the MAPsignals process here.

Disclaimer