Analysts at Morgan Stanley have named the stocks to watch as luxury brands turn their attention to the metaverse, picking one stock in particular that it says is best positioned to benefit from the trend. The term "metaverse" was first coined by author Neal Stephenson in 1992 to describe a computer-generated world accessible through virtual reality headsets. The term resurfaced in popular discussions after Facebook changed its corporate name to Meta last month. While opinions differ on what metaverse means, Morgan Stanley defines it as a "virtual world for immersive co-experiences where users can explore vast numbers of experiences concurrently." With an addressable market worth $8 trillion , the metaverse is "most likely to be a next generation social media, streaming and gaming platform, " according to Morgan Stanley. Companies such as California-based video gaming platform Roblox , South Korean internet giant Naver and Meta (previously known as Facebook) are already in the thick of building their own metaverses, equity strategist Edward Stanley said in a note on Nov. 16. While the metaverse will likely be a years-long process, the rising popularity of non-fungible tokens (NFTs) and social gaming present two "nearer-term opportunities" for luxury brands, Stanley added. The investment bank noted that the NFT market has enjoyed "explosive growth" over the past 12 months — with quarterly transactions valued at over $10 billion in the third quarter of this year, compared to under $28 million in the same period a year ago. Yet, NFTs for luxury brands will account for less than 1% of the total NFT transaction value in 2021, Stanley noted. This could change within a "relatively short time frame," Stanley opined, as demand for luxury NFTs should "accelerate dramatically" as they become more widely used within the metaverse. Potential game-changer The investment bank believes that metaverse gaming and NFTs could constitute "10% of the luxury goods addressable market by 2030" as well as a "50 billion euros revenue opportunity" and an "approximately 25% uplift" to the industry's profit pool, Stanley said. As it stands, brands such as PVH 's Tommy Hilfiger, Dior and Farfetch have been dipping their toes into the metaverse through utilizing digital prototypes, creating virtual stores, allowing customers to try on products virtually as well as launching new collections in the virtual space. Luxury brands including Burberry , LVMH 's Louis Vuitton, G-III Apparel 's DKNY, and Ralph Lauren too, are increasingly incorporating NFTs into their products and advertising, or through metaverse gaming collaborations. Morgan Stanley believes that French luxury goods company Kering — owner of Gucci and Balenciaga, among others — is best positioned to benefit from the advent of the metaverse, given the company's "brand demographics and given head start in innovative digital collaborations." The investment bank noted that Gucci's NFT — "Aria"— was sold in a Christie's online auction last spring for $25,000, while the brand has also embarked on a broad strategy to create and occasionally sell digital clothing and accessories for avatars and games, Stanley noted. Meanwhile, Balenciaga utilized a device-agnostic video game to introduce its Autumn 2021 collection. The brand has also created an in-game Balenciaga-themed hub — a real-world clothing line that gamers can purchase. Kering shares closed at around 711 euros on Nov. 16. The stock is up more than 20% this year.
Customers shop at South Coast Plaza, June 11, 2020 in Costa Mesa, CA.
Allen J. Schaben | Los Angeles Times | Getty Images
Analysts at Morgan Stanley have named the stocks to watch as luxury brands turn their attention to the metaverse, picking one stock in particular that it says is best positioned to benefit from the trend.