3 Metaverse Stocks to Invest in for the Future

Before now, the metaverse was thought to be nothing more than a science fiction concept, envisioned as the future iteration of today’s internet. The term is used to describe a network of 3D virtual environments in which people can interact with one another, as well as different objects while operating a digital avatar. In the not too distant future, a large part of people’s day-to-day life, such as working, socializing, studying, and shopping, could occur in the metaverse.

More and more tech companies are betting on the multiverse and virtual reality. This could prove to be the next big technological revolution that should provide a robust upside for the companies that get a foot into this growing market. According to Roundhill Investments, the global Metaverse opportunity could reach $800 billion in 2024, compared to about $500 billion in 2020. This represents a CAGR of 13.1% over the 5-year span.

Today I will analyze three virtual reality stocks that are investing massively in this market:  Facebook Inc. (FB), Unity Software Inc. (U), and Roblox Corporation (RBLX).

Facebook Inc. (FB)

Facebook, Inc. (FB) is a social media giant, enabling people to connect, share, discover and communicate with each other through mobile devices, personal computers, virtual reality headsets, and in-home devices. The company’s products include Facebook, Instagram, Messenger, WhatsApp, and Facebook Reality Labs.

Since the beginning of the year, FB’s shares surged 24.5%, outperforming the Global X Social Media ETF (SOCL) which is down 0.64% year to date.

Facebook is not yet a metaverse player just yet, however, the company is one of the biggest investors of virtual reality technology. In fact, FB’s virtual reality conferences have gained traction as work from home behaviors generalize, providing new ways for employees to interact.

In terms of financials, FB has been growing consistently since its listing in 2012. The company’s net sales are expected to rise robustly in 2021, up 38.9% year-on-year to $119.4b. In 2022, the growth profile of the social media giant should slightly decelerate, posting a 19.2% increase to $142.3b.

On the other hand, FB’s net income is anticipated to surge even more in 2021, up 39.6% year-on-year to $40.55b and should hit $46.1b in 2022, up 13.7% year-on-year, representing a solid net margin of 32.4%.

With these solid figures, the company has enough margin to invest aggressively in new technologies such as VR technology. Indeed, FB’s Capex has grown aggressively in the past years and the company is investing more than 17% of its sales to develop new technologies to sustain its rapid growth. Moreover, with a net cash position of $79.2b in 2021, which is expected to rise by 39% in 2022 to $110.1b, FB has enough firepower to fuel its research and development projects.

Given that, the social media giant seems fairly valued, with a 2022e EV/EBITDA of 11.6x and a 2022e P/E ratio of 22.1x.

Unity Software Inc. (U)

Unity Software Inc. (U) is the preferred platform for creating virtual reality experiences and operating interactive, three-dimensional content. The company provides a set of software solutions for mobile phones, tablets, computers, consoles, and augmented & virtual reality devices.

The stock performance of U disappointed shareholders, as U shares lost 16.8% year-to-date, whereas its benchmark the SPDR S&P Software & Services ETF (XSW) gained 12.7% since the beginning of the year.

U provides unique virtual experiences for the video gaming industry, yet, the company has delivered various solutions for the transportation and manufacturing industries. The company is also scaling applications for architectural, engineering, and construction projects, providing revenue diversification for the firm.

While the company is much smaller than FB, the company’s revenues have grown rapidly over the years and analysts are expecting net sales to skyrocket by 37.3% in 2021 to $1.06b. In spite of this strong advance, U is not expected to generate a profit in the next two years and should increase its net loss in 2021 to $459m from -$282m in 2020.

However, U has a strong cash position of $1.02b in 2021, enabling it to continue to develop its operations and develop its current research pipeline. With a Capex of $503m in 2021, which is expected to rise by more than 50% in 2022 to $757m, U’s balance sheet is strong enough to sustain the developments of its innovative products.

In terms of valuation, the company is posting an enormous 2022e P/B ratio of 26.4x and a 2022e EV/Revenue of 28.3x, which indicates that there is a high degree of speculative power on the stock that might not bode well for investors looking to enter U now.

Roblox Corporation (RBLX)

Roblox Corp is a technology company that has created a gaming platform that allows users to interact with millions of other users. The platform is powered by user-generated content that draws inspiration from gaming, entertainment, social media, and even toys.

Since RBLX was listed on the NYSE on the 10th of March 2021, its shares advanced healthily, rising 11.5%. In the meantime, its benchmark, the XSW ETF advanced only 10.6% in the same period.

The company has a growing platform of 43.2 million daily active users that connect with each other in virtual 3D worlds (the metaverse) and engage in various activities such as games, educational experiences, and virtual concerts. As RBLX expands its user base, it opens the door for new monetization opportunities that can significantly increase the value of the platform.

One of these opportunities is virtual concerts where RBLX has proven it has an engaged audience that wants to connect with artists. RBLX reported that over 36 million people watched a live virtual concert with Lil Nas X. In addition, the launch party for Zara Larsson broke records with over four million visits.

Metaverse-specialist RBLX is onto something big. For this reason, RBLX could grow much more than investors realize. It just might be like buying Facebook soon after its IPO in 2012.

The company’s top line is expected to jump by 42.1% in 2021 to $2.67b but should decelerate to 20.1% in 2022 to $3.21b, according to the consensus of analysts. In spite of these healthy growth rates, the company should post a net loss of $439m in 2021, and RBLX is not expected to deliver a profit in the next two years.

The company has a suitable cash position for a company that just listed on the NYSE, with $1.81b in 2021, which is expected to rise to $2.62b in 2022. Nevertheless, metaverse specialist is investing less than FB, posting a Capex/Sales ratio of 5.78% in 2021 compared to over 20% for FB.

In spite of that, RBLX trades higher than both of its metaverse peers, with its current P/S ratio of 32.79x and a P/B of 87.23x, RBLX’s shares are highly overvalued.