The emergence of extended reality – the intersection of real and virtual environments in which human and machine interactions are integrated using technology and wearable devices – is better known as the metaverse. Grand View Research expects the metaverse to grow to a $679 billion market by 2030, yielding a compound annual growth rate of 30%.
Many tech companies have rushed to provide the hardware and software needed to build and interact with these virtual worlds. While many metaverse stocks could become an exciting transition in this universe, they could find particularly interesting opportunities in Metaplatforms (FB -2.11% † and Roblox (RBLX -0.75% †† Let’s take a closer look at these two metaverse stocks.
Since its flagship Facebook site covers a large percentage of the world’s population, the company formerly known as Facebook bet on a shift into the metaverse. Although the name change will ultimately mean little to the company, Meta will probably play an increasingly important role in this virtual world.
For starters, around 2.8 billion users visit one of its social media sites – Facebook, Instagram, Messenger or WhatsApp – every day. This network offers an advantageous starting point. In addition, it has built a leadership position in VR glasses with its Oculus Quest 2 headsets Qualcomm chips, this helmet claims a leading position in its market. In addition, the accompanying creation of “haptic gloves” provides a sense of feel, an experience that could enhance their role in the Metaverse.
Investors should also know that the company generated $118 billion in revenue in 2021, 37% more than in 2020. Granted, Reality Labs, which represents its Oculus headsets, was just over $2 billion dollars of that revenue.
Overall, Meta made a net profit of $39.4 billion that year, up 35% from a year ago. A 96% increase in the provision for income taxes offset relatively slower growth in costs and expenses.
Despite this growth, the share price has fallen by more than 30% in the past 12 months. Investors were hammering on slowing earnings growth, and the first-quarter outlook it presented led to the largest loss of market capitalization in stock market history.
However, other stats suggest it may be time to buy the Meta dip. The decline left the company with a price-to-earnings ratio of 15, an attractive valuation, even if its forecast for Q1 revenue growth comes in between 3% and 11%.
All in all, the Metaverse Meta offers a wide range of growth opportunities. Between the company’s massive user base and its VR products, Meta could potentially live up to its new name.
Tech giants like Meta aren’t the only companies with potential in the metaverse. Roblox has built a huge social ecosystem through its game development platform. Users can develop and play games on platforms ranging from PCs to smartphones to VR headsets. Developers can also monetize games by bringing people together in the metaverse on the social platform. Then there’s the virtual currency – Robux – used on the platform which could grow a little more as Roblox dives deeper into the metaverse.
Thanks to its ecosystem, it has attracted about 55 million users. More than half of this user base was under the age of 13 until last year. However, he started to attract more interest from the over 13s and got more and more attention on a professional level. For example, a partnership led to: chipotle developing a virtual restaurant in the metaverse and recently used the platform to promote National Burrito Day.
Roblox’s growing popularity can be seen in the financial industry as the company reported revenue of $1.9 billion in 2021, a 108% increase from 2020. Losses of $492 million, compared to $253 million in 2020.
Thanks to $820 million in deferred revenue, operating cash flow was $659 million. Roblox considers money in users’ digital wallets (the aforementioned Robux) as “deferred income”, recognizing income only when users spend it. This means that his finances are in better shape than his losses would suggest.
However, the company also published its January 2022 results in its annual report. Of particular note is booking growth this month from just 2% to 3% yoy, a significant slowdown from full-year booking growth of 45% in 2021 compared to 2020 figures.
This news, along with a widespread sell-off in technology stocks, caused Roblox’s stock price to fall about 70% from its October high. That means the price-to-sale ratio, which hit 40 last November, is now at an all-time high of 10. Still, Roblox’s potential in the metaverse could be a good reason to add stock to that valuation.
This article represents the opinion of the author, who may disagree with the “official” endorsement position of a high-end consulting firm Motley Fool. We are heterogeneous! Challenging an investment thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.