HOT AIR BALLOON FLIGHT

By Julia Horowitz • Wednesday, February 16

Good morning. In today's newsletter: Early bets on the metaverse are stumbling. Plus, these numbers explain why prices for shoppers could keep rising, and longer stays boost Airbnb.

 

US stock futures are flat. The S&P 500 rose 1.6% on Tuesday as investors displayed hope that diplomatic efforts would help avert a Russian invasion of Ukraine. Markets in Europe were mixed in early trading, while stocks in Asia gained ground.

 

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MARKET FLASH

Wall Street's metaverse dreams take a hit

Wall Street is convinced it's discovered the future of Silicon Valley. But early bets on the "metaverse" are running into some turbulence.

 

What's the metaverse? It's a virtual world in which people hang out, attend meetings and play games as avatars. 

 

It's generating tons of buzz. But shares of video game developer Roblox, an industry leader, are down 16% in premarket trading on Wednesday after the company's earnings missed expectations.

 

While average daily active users hit 49.5 million, up 33% year-over-year, bookings — which measures the amount of virtual currency purchased by users to upgrade their avatars — fell short of forecasts.

The platform, which is super popular with kids, has been a go-to for investors looking to get in on the tech industry's push to make the metaverse the next big thing.

 

In a note to clients earlier this week, Bank of America analyst Omar Dessouky said the metaverse as an investment class "is now like social media at its dawn."

 

He said Roblox, which had a market value of more than $42 billion as of Tuesday's close, "bears resemblance to a young tech giant," even though it was founded in 2004.

 

Driving the hype: Roblox has a head start on competitors, which Bank of America expects will be slower to reinvent themselves as metaverse companies. Roblox's control of the technology that underpins its platform, from development tools to graphics software and data centers, allows it to innovate quickly. And in the future, its immersive online world may not just be for children, as Roblox works to build a digital environment — and economy — that's "increasingly engaging and indistinguishable from the real world."

 

"We think teenagers, and potentially adults, could eventually view Roblox as a multi-purpose platform, similar to how social networks were viewed as such as they grew beyond their core university student demographic," Dessouky said.

 

That's the promise, at least. But it may require investors to have cast-iron stomachs as more speculative investments take a hit.

 

Shares of Roblox, which were given a $45 reference price when they made their stock market debut last year, finished Tuesday at $73.30 apiece.

 

But they've plunged 29% so far this year as Wall Street has soured on the tech sector, which looks less attractive as the Federal Reserve prepares to hike interest rates. Any weakness in earnings doesn't help.

 

It's not the only metaverse stock to pull back recently. Unity Software, a platform for creating 3D content, has seen its shares plummet 21% this year. They're down another 2% in premarket trading Wednesday.

 

And Facebook's Meta, which is taking steps to completely rebrand itself as a metaverse-focused company, has plunged 34% this year as disappointed investors note that the pivot could take years to pay off. The company indicated Tuesday it would now refer to employees as "Metamates."

 

That doesn't mean Wall Street's metaverse frenzy has passed. But at a rocky moment for the market, some of the initial enthusiasm seems to have cooled.

 

Read this: Want to learn more about the metaverse? My CNN Business colleague Rachel Metz just wrote about about why you can't have legs in virtual reality — yet.

VOICES

Russia-Ukraine conflict could cause inflation to hit 10%

"We're talking about a real short-term shock."

 

JOSEPH BRUSUELAS, RSM CHIEF ECONOMIST

 

 

Read more from CNN Business.

ECONOMY MONITOR

These numbers show why prices could keep rising

44%. That's how much the price of beef and veal rose between January 2021 and January 2022, according to the latest Producer Price Index.

 

The data, released Tuesday, tracks average price changes that America's producers get paid for their goods and services over time. And it wasn't just meat that commanded a higher premium, including over the past month.

 

The price of grains was up 22%. Shortening and cooking oils climbed 36%. 

 

Step back: We recently wrote about why fast food chains are expected to keep hiking prices in 2022. Elevated costs for key ingredients — which aren't expected to come down in the near term — are a big reason why. 

 

It's not just food. Energy remains a major sticking point, too, with the price of gasoline shooting up 53% over the past year and diesel fuel gaining 57%. Industrial chemicals remain 31% more expensive over the 12-month period.

 

Why it matters: Producer prices can be a leading indicator for consumer inflation, since they reflect higher costs that are later passed on to customers. The super-hot PPI reading — which showed overall prices rising 9.7% over the past year — indicates that inflation remains strong.

 

Markets looked past the data. But it could add to pressure on the Federal Reserve to act decisively at its meeting next month. Investors now think there's a nearly 60% probability that the Fed hikes interest rates by 0.5 percentage points, a supersized intervention.

 

"Inflation this hot suggests the Fed could kick off their rate raising cycle with a [0.5 percentage point] move," said Lindsey Bell, Ally Invest's chief investment strategist. "That would create significant volatility in stocks."

UP NEXT

Hilton, Kraft Heinz and Shopify report results before US markets open. Cisco, DoorDash, Hyatt and Nvidia follow after the close.

Also today →
▸ US retail sales for January arrive at 8:30 a.m. ET.

▸ Minutes from the Federal Reserve's January meeting go live at 2 p.m. ET.

 

Coming tomorrow: Earnings from Walmart, AutoNation and Palantir.

WHAT WE'RE READING AND WATCHING

▸ Monster Beverage and Corona beer maker could merge (Bloomberg)
▸ ViacomCBS will now be known as 'Paramount' (CNN Business)
▸ Virgin Galactic reopens space tourism sales (CNN Business)
▸ Intel's $5 billion deal sends semiconductor stocks surging (Reuters)
▸ Super Bowl wagers hit records as online sports betting booms (WSJ)
▸ What Microsoft could buy next on its spending spree (CNN Business)

FINAL WORD

Work from the mountains? Longer stays boost Airbnb

Airbnb continues to benefit from a rebound in travel and the rise of remote work during the pandemic, as people ditch city life and choose more picturesque spots for home offices.

 

The company said after markets closed on Tuesday that revenue during the last three months of 2021 reached $1.5 billion, up nearly 80% compared to the previous year and 38% above 2019 levels. It expects a solid start to 2022, and said it's already seeing "strong demand for the summer travel season."

 

"The fourth quarter was another record quarter and 2021 was the best year in Airbnb's history — despite the global pandemic," CEO Brain Chesky said.

 

Shares are up 4% in premarket trading.

 

Airbnb said the impact of Omicron on bookings and cancellations was lower than the company experienced when the Delta variant hit last summer. 

 

It also said customers continue to book longer stays on the platform. Over the past two years, the average trip length has increased by about 15%, according to Airbnb. Stays longer than seven days now account for nearly half of gross nights booked, while stays of 28 nights or more are growing quickly. 

 

"We're seeing that millions of people are not tethered to have to go back to an office five days a week," Chesky told analysts. "And what this means is guests are spreading out to thousands of communities all over the world, and they're also staying longer."

 

On the radar: As demand jumps, particularly in North America, Airbnb hosts are able to charge more. Average daily rates averaged $154 in the fourth quarter, a 20% increase from the same period in 2020 and 36% above 2019.