Often referred to as “the metaverse,” the next evolution of the Internet is on the horizon. In the metaverse, people can replicate various aspects of the real world in a more tangible manner, including socialization, entertainment and e-commerce. So, in other words, they can interact both socially and economically — regardless of location. In turn, this has created a solid opportunity for a few stocks to buy for investors.
With the development of three-dimensional and augmented reality, as well as enhanced 5G connectivity, the metaverse will shape different aspects of our lives, transform many industries and create new businesses. Therefore, I will discuss the best metaverse stocks to buy that are well-positioned to thrive in the next several years.
Moreover, the novel coronavirus pandemic and lockdowns on a global scale have not only increased awareness of the metaverse, but also helped its development. The shift from in-person socialization to life online has fueled broad enthusiasm to engage in this virtual world.
We do not yet have many industry growth statistics for metaverse by itself. But Mordor Intelligence suggests, “The Virtual Reality (VR) market was valued at USD 17.25 billion in 2020 and is expected to reach USD 184.66 billion by 2026, at a CAGR of 48.7% over the forecast period 2021 – 2026.”
Gaming Platforms and Metaverse
Overall, video games lead the way in helping us appreciate how the metaverse can operate in the near future. It would not be wrong to say we’re witnessing a generational change in how individuals create and use content.
For instance, Epic Games CEO Tim Sweeney intends the popular video game Fortnite to become a significant part of the metaverse. In fact, the company has made the metaverse a crucial part of its lawsuit against Apple (NASDAQ:AAPL).
Additionally, the gaming platform Roblox (NYSE:RBLX) enables users to create their own virtual worlds and experiences. The company went public this year, currently boasting a market cap of more than $48 billion.
That said, teens have been spending increasing time on Roblox. Recent metrics highlight, “According to app analysis company Sensor Tower, 10 Americans use the Metaverse platform for more than 150 minutes a day, while using YouTube for 54 minutes, Instagram for 35 minutes, Facebook for 21 minutes, and so on.”
So, with that information, here are three stocks to buy that are poised to benefit from the metaverse phenomenon.
Now, let’s dive in and take a closer look at each one.
Stocks to Buy: Autodesk (ADSK)
52-Week Range: $215.83 – $335.67
San Rafael, California-based Autodesk is one of the most important design and modeling software names. Its products are used in architecture, engineering, construction product design, manufacturing, media, and entertainment. Readers will recognize some of the brands, including AutoCAD, 3ds Max, Maya, Revit, Inventor, Fusion 360 and PlanGrid.
Autodesk released first-quarter 2022 results in late May. Total revenue increased 12% year-over-year (YOY) to $989 million. Total non-GAAP operating income came in at $280 million, compared to $248 million in the prior-year quarter. Non-GAAP diluted net income per share was $1.03, up from 85 cents a year ago. Free cash flow (FCF) stood at $315 million, while cash and equivalents ended the quarter at $923 million.
CEO Andrew Anagnost remarked, “An acceleration in new business, solid execution, and a resilient subscription business model delivered a strong start to the new fiscal year.”
Additionally, the company raised FY2022 “revenue guidance to reflect a partial year contribution from acquisitions….” Autodesk’s software-as-a-service (SaaS) approach has led to greater profitability. In other words, Wall Street loves this subscription model: signing long-term customer contracts leads to more predictability of revenue.
Autodesk is currently repositioning many of its new products for the metaverse. With an impressive customer backlog and plenty of growth opportunities ahead, the company boasts solid fundamentals. ADSK stock hit an all-time high (ATH) of $334.06 this week, and currently hovers slightly below $330 territory — up 8% YTD.
Forward price-earnings (P/E) and current price-sales (P/S) ratios stand at 67.57 and 18.99, respectively. Interested readers could regard the dips as an opportunity to buy the shares.
52-Week Range: $60.50 – $103.87
On the Roblox platform, players can interact with each other to develop immersive 3D experiences. The platform provides a wide range of online games for kids, teens and adults.
Roblox announced Q1 results in mid-May. Revenue increased 140% YOY to $387 million. Net loss was $134.2 million compared to $74.4 million in the prior year quarter. Basic and diluted net loss per share stood at 46 cents compared to 44 cents a year ago. FCF increased 4.1 times over the prior-year quarter to $142.1 million. Cash and equivalents ended the quarter at $1.6 billion.
CEO David Baszucki said, “The opportunity of what we’re building at Roblox is massive, and we will continue to make long-term investments as we build a human co-experience platform that enables shared experiences among billions of users.”
Furthermore, Roblox’s primary user base is children and young adults. The pandemic fueled a significant boost in revenue growth, as kids had plenty of free time at home during the lockdowns. And while developers offer increasingly immersive experiences, Roblox wants to expand the user base to older demographics, too.
RBLX stock started trading in March and currently hovers around $84, down 19% from its record high of $103.87 in early June. RBLX stock shares fell by about 10% over the past month, as investors sold off high growth pandemic plays. However, many investors are currently reconsidering their strategy due to rising Covid-19 cases fueled by the delta variant. And after Monday’s massive rise, RBLX stock is down just 2% the past month.
Overall, the company is in a high-growth mode. So the recent pullback in RBLX stock could offer long-term investors a valuable opportunity to invest in the gaming platform. The current P/S ratio stands at 38.57. Thus, if you believe the company could become a leader in metaverse and create a separate world within the real world, then this member of the metaverse stocks to buy deserve your attention.
Stocks to Buy: Unity Software (U)
52-Week Range: $65.11 – $174.94
San Francisco, California-based Unity Software also provides a software platform for creating and operating interactive, real-time 3D content for mobile phones, tablets, consoles, PCs and augmented and virtual reality devices.
Unity released Q2 results earlier this week. Revenue increased 48% YOY to $273.6 million. The non-GAAP loss dropped to $3.2 million, compared to $8.7 million in the prior-year quarter. Diluted non-GAAP net loss per share stood at 2 cents, and cash and equivalents ended the quarter at $1 billion.
CFO Luis Visoso said, “We had another consecutive strong quarter, with revenue for the quarter at $273.6 million, up 48% year-on-year as we added new customers and expanded our business with existing customers.”
Unity essentially provides the infrastructure that 3D content creators will be using to shape the virtual landscape of the metaverse. Its 3D platform is used by most of the top 100 game development studios by revenue.
We should note that Unity’s potential exceeds gaming, as the platform is also utilized in industrial applications, film, automotive, animation and engineering. That said, management is forecasting 37% growth and $1.05 billion in total revenue for 2021.
U shares currently hover at $120, down 21% YTD. The current P/S ratio stands at 35.55. With that in mind, interested investors would potentially find better value around $100, or even below.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Tezcan Gecgil, Ph.D., has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all three levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.