Neal Stephenson coined the term “metavers” in his novel Snowfall three decades ago, but it has re-emerged as a buzzword over the past year as virtual reality, augmented reality and digital asset platforms have mixed and blurred the barriers between the physical worlds and digital.
This global metaverse market could grow at a compound annual growth rate (CAGR) of 39.1% between 2022 and 2030, according to Report Ocean. However, there is a lot of hype and noise in this booming market, and it can be difficult for investors to separate the losers from the potential winners.
Today I will review three promising stocks from the metaverse – Metaplatforms (FB 3.86%), Device software (U 11.43%)and Roblox (RBLX 15.36%) And explain why they could still make attractive investments in this challenging environment for higher-growth technology stocks.
Last October, Facebook renamed itself Meta Platforms to show its long-term focus on the metaverse market. This strategy is rooted in the Reality Labs segment, which generated $ 2.3 billion in revenue in 2021, primarily by selling VR headsets, VR software and smart glasses.
The Reality Labs segment accounted for only 2% of Meta’s revenue and raised $ 10.2 billion in operating losses last year, but has been steadily rising. Meta is reportedly launching around 10 million Quest 2 headsets by 2021, and its Horizon Worlds VR playground hit 300,000 users earlier this year. It also requires a cut of almost 50% of all virtual asset sales on this platform.
Meta’s metaverse activity is still small compared to the 3.64 billion people who access at least one of the apps (Facebook, Messenger, Instagram and WhatsApp) every month. It will probably also continue to burn money as Meta focuses on selling cheap headsets to attract more users.
But in the long run, Horizon Worlds may continue to grow as Meta releases more devices and metaverse experiences. This transformation can reduce a company’s reliance on targeted advertising.
Meta’s stock has already lost about a third of its value this year and is trading at only 16 times futures earnings. This low valuation reflects short-term challenges for its advertising business, but investors with confidence in their view of the meta-verse should consider hoarding stocks today.
2. Unity Software
Shares in Unity Software have halved this year as investors retire from more expensive growth stocks. The stock may still look a bit pricey at 14x this year’s sale, but I think Unity is a solid meta-buy for three reasons.
First, Unity’s game engine drives more than half of all mobile, console and PC games in the world. Developers use Unity because it brings together various tools for creating graphics, sound effects, in-app ads, and multiplayer features in one easy-to-use package. Games created with Unity can also be run on multiple game platforms without being rewritten.
Popular VR games including Meta beat the saber, already running on Unity. Therefore, Unity should benefit from the long-term growth of the traditional gaming market as well as the expansion of the metaverse gaming market.
Second, Unity has a clear vision for the future. It expects to generate more than 30% annual revenue growth “long-term” and break-even on a non-generally accepted accounting principles (non-GAAP) by 2023.
Finally, the company plans to develop its ecosystem beyond the gaming market. It is already used to develop non-game 3D graphics for virtual reality teaching, training applications and industrial automation technologies, and it has recently entered the market for theatrical special effects by acquiring Weta Digital from Peter Jackson (who produced it special effects for Lord of the Rings and The Iron Throne) in December last year.
All these strengths undoubtedly justify Unity’s higher valuation and make it a solid long-term investment in the growing metaverse market.
Roblox has become a household name during the pandemic as millions of locked children have built, shared and monetized simple games on their platform. Its popularity rose sharply because its block-based system was easy to use, required no coding knowledge and was a creator-focused platform such as. Alphabet‘s YouTube that did not trust professional developers.
Roblox’s growth slowed in a post-lockdown market as more children returned to school, but it still ended in 2021 with 49.5 million daily active users (DAUs), representing a 33% growth over a year ago since. It also continues to get older users (over 13) and expand abroad.
Roblox’s popularity has made it a fruitful platform for big brands like Nike, Keringis Gucci, and sony Music to sow their own metaverse seeds. Nike built a virtual showroom called Nikeland, Gucci launched “Gucci Garden” theme rooms to showcase its products, and Sony Music launched metaverse concerts for its recording artists. If other brands follow suit, Roblox’s platform could evolve into a virtual mall where users can use their Robux currency in the game.
Roblox’s stock has lost about two-thirds of its value this year as investors worry about declining growth and rising losses. But after that downturn, it traded at only seven times this year’s sales. If Roblox stabilizes its business and continues to win more DAUs and brand partners, its stock could rise and become a top-game metavers again.