Companies have been struggling to entertain us for many years, evolving from radio to television, film and games. The “metaverse” is the latest chapter in entertainment and its growing popularity means investors should at least be familiar with it. That’s why the metaverse is important and three values that are about to benefit.
What is the metaverse?
The metaverse is where the physical and digital worlds converge. Think of the physical world we live in and the digital world we access through the Internet. Technology has progressed and the way people interact has become more digital over time.
The digital world has evolved, from basic online connections such as email and instant messaging to social media and large online gaming communities, such as Fortnite i Minecraft.
Until recently, the Internet and games were separate from the physical world; you would log in to access it. With the gradual advancement of virtual and augmented reality and enhanced 5G connectivity, the ingredients are available for the next advancement of how we interact. The digital world is beginning to overlap with the physical world.
It’s still unclear what the metaverse will look like, but it could be huge. According to research firm Strategy Analytics, the global metaverse could be worth $ 280 billion by 2025 and is likely to continue to grow from there.
Unity software (NYSE: U) operates one of the two main 3D engines, along with Epic Games, the creator of Fortnite. Together, these two companies form the duopoly of 3D creation.
Unity is used by 94 of the top 100 revenue-generating game development studios, and its platform touches 2.7 billion active end users. The unit is best regarded as the “sink and shovel,” the infrastructure that many creators will use to build the virtual landscape of the metaverse.
Unity’s revenue grew 41% year-over-year during the first quarter of 2021, and management guides 31% growth and total revenue of $ 1 billion for the full year. The potential of Unity goes beyond games; the platform is used in industrial applications, automotive, film, animation, engineering and more.
Customers spend 40% more each year after using Unity, so the company could continue to grow rapidly with revenue as its software is used in more and more industries.
Roblox (NYSE: RBLX) is an online entertainment platform where creators can develop games and experiences and users can participate. Roblox works as its own economy, with its own currency (Robux) with which creators and users interact.
For now, Roblox is the closest thing to any public company that can emulate the concept of metaverse. Users can interact and socialize with Roblox and enjoy personalized experiences, such as when Roblox joined Walt Disney for a Star Wars project in 2019 or when music artist Lil Nas X did a live concert at Roblox in 2020.
Roblox’s main user base is children and it has experienced a major boost in growth during the pandemic. In the first quarter, revenue grew 140% year-over-year and the company is expected to grow 169%, to $ 2.47 million in 2021, while recording earnings per share of $ 0.79.
It remains to be seen whether Roblox can expand its user base to older demographics, which could be a long-term hurdle for the company if it can’t.
Aside from its popular social networking platforms, Facebook (NASDAQ: FB) it is also a major player in augmented reality (AR) and virtual reality (VR) with its ownership of Oculus.
CEO and founder Mark Zuckerberg is one of America’s best-known executives and has already proclaimed that Facebook will become a “metaverse company” for the next five years, a move that marks the mix of Facebook’s social network and its ambitions in RA and VR.
Facebook is the largest and most mature company in this group and is a cash cow. It generated $ 7.8 billion in free cash flow in the first quarter of 2021, more than the revenue that Unity and Roblox will generate all this year, combined.
Zuckerberg is assembling an executive team to work on Facebook’s metaverse agenda. Over time it will be revealed if Mark’s vision will come to be, but if one thing is true, Facebook has the resources to make that vision a reality.
Here is the conclusion
The metaverse is an exciting concept that is still in its infancy. Investors could benefit from broad exposure to these three companies. It will be hard to know who the big “winners” and “losers” will be until years from now, but these companies have a good chance of being in the mix because of their diversity.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We are motley! Questioning an investment thesis (even one’s own) helps us reflect critically on investment and make decisions that help us be smarter, happier, and richer.