What Are Metaverse Stocks, and How Do They Work?
The Metaverse is a virtual world in which users interact with one another and with the virtual environment through avatars. Business, social, or gaming interactions are all possible. Metaverse stocks cover a wide range of topics. Some are pure plays or companies that just deal with the metaverse. Others are software firms that are currently profitable but could benefit from a new revenue stream. Metaverse stocks can also be hardware firms. The metaverse necessitates the usage of augmented reality (AR) or virtual reality (VR) headsets in many cases. Several growth stocks benefit from the metaverse trend, while others are already Big Tech members with long histories trying to profit on new technology.
What Happened to Metaverse Stocks in 2021?
In 2021, the performance of Metaverse stocks was varied, with some outperforming the S& P 500 and others underperforming. NVIDIA (NVDA) was the major winner in calendar 2021, with a gain of almost 125 percent. After being hammered by whistle-blower testimony and other issues, Meta Platforms (FB), formerly Facebook, increased only 23%.
Also worth noting are hot growth names Roblox (RBLX), Unity Software (U), and Matterport (MTTR), all of which were up significantly in late 2021 but sank significantly in 2022. Growth stocks have fallen out of favor due to macroeconomic conditions, therefore selling pressure has remained in 2022. Their performance in the new year is graphed below.
Stocks to watch in 2022 in the Metaverse
In the years 2020 and 2021, Roblox was a significant story. During the pandemic, both user and revenue growth soared. Roblox is a free online metaverse gaming platform that allows users to play and make games. The majority of the company’s revenue comes from in-game “Robux,” which lets customers customize their experience.
Roblox must demonstrate that it is more than just a “pandemic stock” by continuing to build its user base and translating this to profits. Its income has been constantly expanding, but this hasn’t converted into operating profitability. The company’s operations generate a lot of cash.
In Q3 2021, there were also some promising findings. The number of daily active users (DAUs) has risen to 47.3 million. When compared to the 19.1 million in Q4 2019, this is a massive figure. The fourth quarter of 2019 was the last before the pandemic in the United States. The number of hours users were engaged increased by 28% year over year in Q3 (YOY).
The valuation is a major issue. Even after the pandemic sales bump and the recent share price collapse, the stock trades at over 20 times sales. Growth stocks are currently suffering from difficult macroeconomic conditions, and Roblox could continue to decline.
Unity is a piece of software that allows developers to create 2D and 3D content for a variety of devices, including smartphones, PCs, and AR and VR systems. The beauty of Unity is that the content you generate with it can be used on a variety of platforms. Unity’s promise extends far beyond gaming.
The stock of Unity skyrocketed in 2021, but it has since plummeted from its highs. It is currently trading at a discount of more than 40% to its 52-week high of $210. As can be seen in the graph below, there is a lot of downward pressure right now.
Unity has a strong gross margin, which was 79 percent in Q2 2021 and 78 percent in Q3 2021, respectively. In addition, the company’s revenue has been steadily increasing. After expanding by almost 48 percent year over year in Q2 2021, revenue increased by 43 percent in Q3 2021.
Unity is currently trading at more than 30 times forecast sales, implying that, like Roblox, selling pressure may persist in the short term.
NVIDIA is a metaverse “picks and shovels” game. Its chips will be utilized to power the resulting metaverse platforms. The company also used CES to announce the free availability of their Omniverse software, which serves as the “plumbing” for the creation of metaverses.
Omniverse has been downloaded by over 70,000 different creators. Since the December introduction of the open beta. On the global market, there are around 40 million 3D designers.
At GTC, we saw our Omniverse vision come to life. We introduced new capabilities and dramatically enlarged its ecosystem. Omniverse Replicator is a data-generating engine for robot training. Replicator augments real-world data with huge, diversified, and physically realistic synthetic datasets to assist expedite the creation of high-quality, high-performance AI across computational demands. The NVIDIA Omniverse Avatar platform connects multiple fundamental NVIDIA SDKs, including speech AI, computer vision, natural language comprehension, recommendation engines, and simulation, to create interactive AI avatars.
NVIDIA is much more than stock in the metaverse. The corporation is a tremendously profitable behemoth that had a fantastic year in 2021. It is presently trading at a discount of almost 20% to its 52-week high. Revenue for fiscal Q3 totaled $7.1 billion, up 50% from the same quarter in 2020. As indicated below, operating income was $2.7 billion.
In recent years, revenue growth has risen dramatically, attracting the attention of investors. The stock presently has a forward price-to-sales ratio of over 26 and a non-GAAP forward price-to-earnings ratio of 65.
Another intriguing metaverse experiment is Matterport. This business converts tangible assets into digital files. After then, digitalization might be used for design, operations, or other types of visualization. Among the industries that profit is real estate, retail, hotel, and construction. The company has 439,000 users and annualized sales of $111 million. The stock hit a peak of approximately $37.00 in late 2021 but is currently trading at a 58 percent discount to its previous high.
In July of 2021, the firm went public via a SPAC merger, and care is advised.
Meta is so committed to the metaverse that it renamed itself Facebook earlier this year. Meta argues that the natural evolution of social media is towards the metaverse. To that purpose, it has made available Oculus VR headsets, including the Rift and Questlines, and plans to make them even more available in the future.
The metaverse is the next step in social networking’s evolution. Our company’s objective is to help create the metaverse, therefore we’re changing our name to reflect our commitment to that goal.
In the metaverse, 3D places will allow you to socialize, learn, collaborate, and play in ways that we can’t even envision.
When a whistleblower testified before Congress in 2021, Meta was embroiled in controversy. The stock suffered a setback, but it still ended the year on a positive note. Despite the hullabaloo, Meta’s revenues and operating profitability were strong in 2021, outpacing those of 2020.
Meta is expected to have a successful fourth quarter based on excellent advertising results. The company is trading at a forward P/E of less than 24.
(AAPL) is another corporation that is looking to the metaverse to improve on its already stellar performance. According to rumors, the corporation plans to release its AR/VR headgear in 2022, with a lighter, slimmer improvement following in 2024. Given the company’s 1 billion iPhone users as its primary customer base, the potential is enormous.
The prospect of a new cash source to complement the iPhone, Mac, and iPad has investors drooling, and the company’s valuation has briefly surpassed $3 trillion. Apple’s fiscal year 2021 earnings were outstanding. Revenues increased by 33% to $365.8 billion, while operating income increased by 64% to $108.9 billion. Similarly, diluted EPS increased by 71% to $5.61. Because of the company’s aggressive share repurchase program, EPS grew faster than operating revenue. The corporation purchased back $85 billion in stock in fiscal 2021, which is about 3% of the current market cap, as seen below.
A $0.22 quarterly dividend is also paid by the corporation. The buybacks are beneficial since they reduce the number of outstanding shares of the company, allowing EPS to rise faster. They also serve as a tax-deferred capital return to shareholders.
Due to market expectations for the future year and the new product introduction, Apple’s current forward P/E ratio of 30 is higher than historical averages. Some believe it is overrated, but I would not bet against this stock or firm.
Microsoft (MSFT) seeks to use the metaverse to gain a competitive advantage in the marketplace. By shifting virtual meetings from the video camera to the metaverse, Microsoft Mesh for Teams aims to revolutionize the way virtual meetings are currently done. Users can use AR/VR technology to conduct meetings, provide presentations, walkthroughs, and many other collaborative functions with this program. As the “work-from-anywhere” idea gains traction, this is more vital than ever. Even from a distance, companies must be able to sustain a strong business culture and collaborative team functions.
Overall, Microsoft had a great year in 2021, and I think it will be the best stock on this list in 2022. Microsoft’s revenue increased by 18 percent in fiscal 2021, reaching $168 billion. Operating income climbed by 32% to $70 billion, thanks to tremendous, and continuing margins, as indicated in the chart below. Microsoft’s operating and EBITDA margins are both well above 40%, demonstrating the strength of the software-as-a-service ((SaaS)) model and the company’s excellent management.
With a forward P/E of 33, Microsoft stock is currently trading 10% below its 52-week high. As with Apple, the corporation buys back stock in large quantities, which benefits shareholders and reduces the number of shares outstanding, as illustrated below.
Microsoft also pays a quarterly dividend of $0.62, which is quite safe
The metaverse potential is merely icing on the cake for Microsoft. Going into 2022, the company is on fire, and this stock will continue to reward long-term investors handsomely for many years to come. Microsoft, in my opinion, is the best bet for 2022, based on the whole package of improving margins, growth, cash flow, decreased risk, and capital return to shareholders.
Frequently Asked Questions
Is investing in Metaverse Stocks a good idea?
There will be winners and losers, as in any other industry, as well as a lot of movement along the road. Some of the stocks featured here, such as Microsoft, have little metaverse exposure and huge prices. Long-term dangers are substantially lower with these. Others, such as Roblox, are still relatively new and pose a bigger danger due to their high ceilings. When considering a metaverse bet, an investor should think about their risk tolerance and long-term portfolio goals. In the short run, the mega-caps may have the upper hand until the dust settles on growth stocks.