Neal Stephenson coined the term “metaverse” in his novel Snowfall three decades have passed, but it has re-emerged as a buzzword over the past year as virtual reality, augmented reality and digital asset platforms blend and scatter the barriers between the physical world and digital.
This global metaverse market is likely to 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 emerging market, and it can be difficult for investors to separate the losers from the potential winners.
Now, I will discuss three promising metaverse stocks – Metaplatforms (FB 3.86%), Software unit (U 11.43%)and Roblox (RBLX 15.36%) – and explain why they can still make attractive investments in this challenging environment for higher -growth technology stocks.
In October, Facebook rebranded itself as Meta Platforms to reflect its long-standing focus on the metaverse market. This strategy is rooted in part by Reality Labs, which will generate $ 2.3 billion in revenue by 2021 primarily selling VR headsets, VR software and intelligent glasses.
The Reality Labs share accounted for only 2% of Meta’s revenue and earned $ 10.2 billion in operating losses last year, but it continues to grow. Meta reportedly shipped about 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 metaverse activity is still small compared to the 3.64 billion people who access any of the apps (Facebook, Messenger, Instagram and WhatsApp) each month. It could also continue to burn money as Meta focuses on selling cheap headsets to attract more users.
But in the long term, Horizon Worlds could continue to grow as Meta releases more devices and metaverse experiences. This change will reduce the company’s reliance on targeted advertising.
Meta’s stock has lost about one-third of its value this year and is trading at 16 times forward earnings. This short-term appreciation presents imminent challenges for the advertising business, but investors confident looking at it in the metaverse should consider hiding the features now.
2. Unity Software
Shares of Unity Software split in the middle of this year as investors withdrew from more expensive growth stocks. The stock may still look a bit expensive at 14x sales this year, but I think Unity is a solid buy in the metaverse for three reasons.
First, the Unity game engine powers more than half of all mobile, console, and PC games in the world. Developers use Unity because it bundles a variety of tools for creating graphics, sound effects, in-app ads, and multiplayer features in one easy-to-use package. Games made using Unity can also be run on multiple gaming platforms that have not been rewritten.
Popular VR games including Meta struck the saber, already running on Unity. Therefore, Unity should benefit from the long -term growth of the traditional game market as well as the expansion of the metaverse game market.
Second, Unity has a clear vision of the future. It is expected to generate more than 30% annual revenue growth “in the long term” and break even on a non-Generally Accepted Accounting Principles (non-GAAP) basis by 2023.
Finally, the company plans to develop its ecosystem beyond the gambling market. It has already been used to create non-game 3D graphics for virtual reality education and training, self-driving applications and industrial automation technologies, and it has only recently entered the market of special effects theater. . by acquiring Weta Digital from Peter Jackson (who created special effects for the Lord of the rings and The Iron Throne) in December.
All of these strengths may justify Unity’s much higher appreciation and make it a strong long-term investment in the growing metaverse market.
Roblox became a household name during the pandemic because millions of locked up kids built, shared, and monetized simple games on its platform. Its popularity has increased because its block-based system is easy to use, does not require coding knowledge, and is a creator-focused platform such as AlphabetYouTube does not rely on professional developers.
Roblox’s growth was slow in a post-lockdown market as more children returned to school, but 2021 still ended with 49.5 million daily active users (DAU), representing a growth of 33% compared to a year ago. It also continues to gain older users (over 13) and expand overseas.
Roblox’s popularity makes it a fertile platform for big brands like Nike, Dryis Gucci, and sony Music to sow their own metaverse seeds. Nike has set up a virtual showroom called Nikeland, Gucci has launched “Gucci Garden” themed rooms to showcase its products, and Sony Music is launching metaverse concerts for its recording artists. If other brands follow, Roblox’s platform will become a virtual mall where users can spend their Robux in-game currency.
Roblox stock has lost about two-thirds of its value this year as investors worried about slowing growth and rising losses. But after the downturn, it sold just seven times sales this year. If Roblox strengthens its business and continues to acquire many DAUs and brand partners, its stock could rebound and once again become a top game metaverse.