When Take-Two Interactive (NASDAQ:TTWO) announced it would buy Zynga (NASDAQ:ZNGA), shareholders rightfully sold TTWO stock. Although people still play mobile games, the sector peaked when Electronic Arts (NASDAQ:EA) bought Glu Mobile in early 2021. Mobile gamers crave a more immersive experience. Zynga’s games offer only a fraction of what powerful smartphones may support. Mobile devices, computers and handheld consoles that support Augmented Reality (AR) and Virtual Reality (VR) games will likely take off this decade. The acquisition has boosted meta stocks as a result.
Dubbed the Metaverse, Facebook (NASDAQ:FB) is staking its future on it. The company renamed itself Meta Platforms to signify a strategic shift.
Meta’s platform is a gateway to the metaverse. It will spend billions developing the hardware and the platform to support the Metaverse. Investors should treat Take-Two’s Zynga bid, worth $12.7 billion or a 64% premium to Zynga’s Jan. 7, 2022, close price, as a turning point. The Metaverse is worth infinitely more.
There are seven meta stocks to buy after Take-Two bought Zynga. They are:
- Apple (NASDAQ:AAPL)
- Meta Platforms
- Himax Technologies (NASDAQ:HIMX)
- Microsoft (NASDAQ:MSFT)
- Matterport (NASDAQ:MTTR)
- Roblox (NYSE:RBLX)
- Unity Software (NYSE:U)
Meta Stocks to Buy: Apple (AAPL)
One of their core products, Apple’s iPhone has been a revelation in the creation of AR technology. When Nintendo (OTCMKTS:NTDOY) launched the Pokémon AR game, it showed what games the iPhone could support. Apple is also reportedly developing a mixed-reality headset. This accessory will build upon its experience with the Beats headset and Airpods. Furthermore, Apple has the best camera in iPhones. The mixed-reality headset may apply that technology in an AR/VR setting.
Apple does not need to rush the headset’s development. Nintendo introduced AR to the masses a few years ago with Pokémon Go. Besides, it may let competitors develop headsets to confirm that they will gain traction.
Apple has a solid track history of releasing compelling accessories that consumers want. It launched several iterations of the Watch and AirPods. Each time, demand for them increased. Long-term investors should expect that an Apple headset would succeed.
It’s also worth noting strong sales of Apple’s Macs, up 9% from the prior quarter, outpaced that of the PC market. Gamers will note that Macs do not offer the same graphics power as PCs. Yet, with strong Mac sales, Apple may consider building AR/VR support at this level first. It could sell headsets that connect to a Mac system.
Meta Platforms (FB)
Meta’s pivot to the metaverse will assure its lead in the sector for the next decade. The company has massive cash flow from advertising sold on their social media sites Facebook and Instagram sites. Consumers looking for an inexpensive headset will consider Oculus Quest 2, which Meta released in 2020.
Due for introducing an update, Oculus Quest 3 will solidify its market share in the metaverse. The budget-friendly headset will spur customers to give the VR headset a try. Expensive VR games on PC require hard-to-find, expensive graphics cards. Oculus is affordable and only requires a login to Facebook. Expect Meta to announce the Quest 3 release sometime in 2022.
Meta will build its metaverse moat by hiring talented augmented reality staff from other companies. For example, it may offer double the salary of leading competition to lure people away. While the firm will solidify its long-term leadership in the space, it is not ignoring its core businesses.
Meta is testing new feed sorting choices. This gives users more control. It also potentially lowers regulatory risks as governments investigate Instagram’s algorithm for creating possibly addictive and unhealthy behaviors.
Meta Stocks to Buy: Himax Technologies (HIMX)
Himax Technologies is a leading supplier of liquid crystal on silicon (LCOS) microdisplays for augmented reality devices. It also supplies heads-up displays for the automotive industry. A research report by VynZ Research cited Himax as one of the key players in the AR/VR market.
Himax is a leader in the LCOS industry. Since 2012, the company produced and shipped over two million units. Customers need the product for applications such as pico-projectors, projectors, communications and head-mounted display. Himax has an array of products, ranging from display drivers to intelligent sensing.
In the third quarter, the company posted revenue growing by 75.4% year-over-year to $420.9 million. The gross margin reached 51.7%. It earned 79.5 cents per diluted share. For Q4, Himax expects revenue will grow by 4%-8% quarter-over-quarter. It will post a profit between 74.5 to 79.5 cents per fully diluted share.
Cautious investors will notice that no analyst rated Himax stock in the last three months.
Meta is poaching from Microsoft’s HoloLens team. That will not stop Microsoft from becoming a strong player in the metaverse. It has around 1,500 staff working on HoloLens. It may counter-offer with a higher salary for the approximately 100 staff leaving Microsoft.
Microsoft ultimately needs to renew its commitment to HoloLens development in two phases. First, it needs more commercial customers ordering VR. Fortunately, Microsoft has a $22 billion contract with the U.S. military. Last year, the U.S. Army announced the production phase of the Integrated Visual Augmentation System program. Microsoft based the IVAS headset on the HoloLens. Microsoft Azure cloud services run in the augmented engine.
After Meta announced its metaverse plans, Microsoft cannot risk ignoring the space. It would limit the Xbox console to standard gaming on a screen. As Meta’s user base on Oculus grows, Microsoft’s Xbox would face more competition.
Just as Meta will grow its cash flow in its core businesses, Microsoft will do so too. It is raising MS Office prices by 20% for customers that do not have an annual subscription.
Meta Stocks to Buy: Matterport (MTTR)
Matterport is a spatial data company. Its core business is digitizing and indexing the physical world. Skeptical investors will wonder if this firm is an overvalued camera and software firm. Matterport began its public listing through a July 2021 SPAC merger with Gores Holdings VI.
After the Nasdaq correction began in February 2021, many post-SPACs under-performed. MTTR stock peaked in December 2021 after trading at almost $38.00.
Matterport has an ambitious goal of building 3D spatial data technology. It uses different camera types and, along with software and applications, captures 3D images. Investors should treat MTTR stock as speculation with the potential to grow in a growth market. Watch for Matterport to monetize its free customers first. It must develop its real estate vertical market. From there, it will carve a niche in the building information modeling market.
In its Q3 2021 conference call, CEO Raymond Pittman said the company viewed 2021 as a transformational year. After its public listing and cash raise, it may focus on growing the Matterport Capture app. The app will lower its customer’s cost of ownership. They may quickly download the app and start using it, using a “freemium” model that has users pay Matterport to use additional features.
Roblox is a global platform that enables people to share experiences. Its strong third-quarter reaffirms the platform growth will continue this year.
In Q3 2021, Roblox reported a 102% year-over-year growth in revenue to $509.3 million. Hours engaged on Roblox rose by 28% Y/Y to 11.2 billion. Despite an outage late last year, it had no lasting impact on users. With a strong holiday period, investors should expect Roblox to post strong results again.
RBLX stock traded to as high as $141.60 after the quarterly report. It erased the post-earnings rally in the last two months. On top of that, the Nasdaq “double topped” and is in a correction. Investors are re-evaluating stock valuations. This will create a better buying price for growth investors.
Roblox built its platform for over 16 years. It owes its platform to its user-created content. It has millions of creators who are improving quality and content. CEO and co-founder David Baszucki said that the company improved personalized search and discovery. Roblox simply matched more content with what players wanted.
Roblox’s content will keep growing. As players play more, their profits will expand.
Meta Stocks to Buy: Unity Software (U)
Unity expanded its usefulness beyond the gaming market and into the commercial space. It announced a partnership with Hyundai Motor (OTCMKTS:HYMTF) on Jan. 6. The firms will build a meta-factory that supports mobility solutions. For example, the platform will support smart manufacturing, autonomous driving simulation and AI training.
More recently, Unity acquired Weta Digital, a firm that supplies visual effects to the movie market. WetaFX tools will enhance Unity’s gaming offering. Expect game developers to introduce more lifelike images and special effects. This will widen the company’s moat in the gaming sector.
CEO John Riccitiello said that Weta Digital will add around $10 billion in incremental total addressable market. Developers may access tools that enable them to add complex simulations to games. For example, they may add a realistic helicopter crashing in a forest. The CEO defined the metaverse as real-time 3D, interactive and often spatially aware experiences.
To justify Unity’s fair value, assume a 50 times terminal EBITDA multiple in this five-year discounted cash flow EBITDA exit model.
|Discount Rate||9.0% – 8.0%||8.50%|
|Terminal EBITDA Multiple||48.7x – 50.7x||49.7x|
|Fair Value||$122.90 – $132.08||$127.42|
On the date of publication, Chris Lau 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.
Chris Lau is a contributing author for InvestorPlace.com and numerous other financial sites. Chris has over 20 years of investing experience in the stock market and runs the Do-It-Yourself Value Investing Marketplace on Seeking Alpha. He shares his stock picks so readers get original insight that helps improve investment returns.