Remember that time the metaverse was a big deal and would change the way we worked, played and interacted with one another? Yeah, good times.
Unfortunately for companies that went all-in on the idea, living your life totally connected to the online world hasn’t gone according to plan. While the virtual hellscape is not dead, it does give off a death rattle.
Most people did not even know what the metaverse was until Facebook changed its name to Meta Platforms (NASDAQ:META). Despite its misnamed alternate reality division Reality Labs losing $50 billion since 2020, the social media giant continues to throw billions more into the sinkhole. Investors were worried it was going to repeat the mistake when it noticeably shifted its attention to artificial intelligence.
While AI has sucked all the oxygen out of the room so that hardly anyone even discusses the metaverse anymore, there are still companies tied to it. And because the world has seemingly moved beyond this virtual world, investors should be wary of the three metaverse stocks to sell below.
Unity Software (U)
Three years ago, Unity Software (NYSE: U) was going to power the metaverse. It even acquired Metaverse Technologies for $45 million because of its ability to enhance 3D computer-aided design visualization performance.
Because the Unity Engine is a leader in virtual and augmented reality, not to mention gaming, it was responsible for powering most of the world’s mobile games. Yet as the gaming market cooled off and Apple (NASDAQ: AAPL) changed its privacy policies that impacted Unity’s advertising business, U stock went into a deep freeze, too.
Unity Software lost 86% of its value over the last three years and over 92% from its late-2021 peak. Although the company is still an important component of the gaming market as well as in the VR and AR worlds, the metaverse is doing nothing to help.
The software specialist is losing ground to Epic Games Unreal Engine, it is downsizing its business still and there are few prospects for turning a profit anytime soon. For all the promise Unity Software held with driving the metaverse forward, it is now a prime metaverse stock to sell.
Roblox (RBLX)
Online gaming platform Roblox (NASDAQ: RBLX) has fared only a little better than Unity Software, losing 72% of its value from the height of its 2021 valuation. Shares are down 16% so far this year, though they had been much lower.
Its immersive gaming platform remains entwined with the metaverse, which is what is holding it back. Because there is little development in education, industrial usage, or services, in the metaverse there seems no catalyst to fire up growth. While it can attract users to its gaming platform, as noted previously that market has largely stalled.
Second-quarter daily average users rose 21% to 79.5 million and monthly unique payers rose 22% to 16.5 million. So the site is still able to attract players. But bookings, which refers to sales of Roblox’s virtual currency, rose less than revenue. That indicates overall slower growth is coming in the future.
Roblox also still generates losses. They only improved slightly to $205.8 million from $282.7 million last year. The gaming platform still has a tough slog ahead of it and it trades at a premium valuation, making it a metaverse stock to sell.
Roundhill Ball Metaverse ETF (METV)
Typically buying an exchange-traded fund (ETF) is a way to spread out risk while capturing all of a sector’s growth potential. In the case of Roundhill Ball Metaverse ETF (NYSEARCA: METV), it was a way to absorb all the risk of the metaverse, as it is proving to be more fad than trend.
The ETF’s stock is down 20% in 2024 and it sits almost 30% below its all-time high. With Roblox being its top holding, representing over 9% of the portfolio, and Unity Software a top-10 pick, the only reason it is not faring worse is because it also owns a handful of Magnificent 7 stocks. Apple, Meta and Nvidia (NASDAQ:NVDA) account for over 18% of its holdings. Yet other than Meta, the other two are only tangentially related to the metaverse.
A look at its holdings also shows why you can’t just go by an ETF’s name before you buy. It owns a collection of top chipmakers, cloud stocks and gaming companies. There are actually very few metaverse stocks in the portfolio.
Even so, Roundhill Ball Metaverse ETF has vastly underperformed the S&P 500. While it sports a reasonable 0.59% expense ratio, its inability to capitalize on the tech industry’s growth while avoiding the pitfalls of its true metaverse stocks makes it an ETF to sell.
On the date of publication, Rich Duprey did not hold (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.
On the date of publication, the responsible editor did not have (either directly or
indirectly) any positions in the securities mentioned in this article.
