3 Top Metaverse Stocks That Could Make You Rich

The technology powering virtual reality (VR) experiences has significantly improved in recent years. VR headsets aren't just available for hardcore gamers at home anymore. This technology is powering real-world applications like virtual walkthroughs of buildings and products still on the drawing board, or collaborations with colleagues in a virtual meeting room. Facebook has made a big splash into this new "metaverse" by changing its name to Meta Platforms (META -10.56%), but that's not the only way to play this trend as an investor.

We asked three Motley Fool contributors to highlight one company that's playing a part in making the metaverse a reality and could make investors rich along the way. They chose Unity Software (U -1.06%), Zoom Video Communications (ZM -0.99%), and Zynga (ZNGA).

Image source: Getty Images.

Unity Software: A digital architect

Danny Vena (Unity): Given the recent hype, investors would be forgiven for wondering what all the fuss is about when it comes to the metaverse. Yet the ability to play games, meet with friends and family, buy goods, and simulate products -- all in the digital realm -- could be a game-changer.

That's where Unity Software comes in. The company provides the most widely used game engine in the video game industry, allowing developers to design and customize how players interact in the games. Its use is so dominant, in fact, that 94 of the largest 100 gaming studios use Unity's platform to create their games. 

It doesn't stop there. Unity's platform is also adept at creating and operating interactive, real-time 3D content. Architects, automotive designers, filmmakers, and more use Unity's tools to "make their creations come to life." The platform's high-performance and easy-to-use software helps designers breathe life into their visions. So when it comes to making a virtual world a reality, Unity provides everything developers need to build it.

While a single metaverse is the ultimate goal, in the short term, it will more likely be a number of smaller virtual realms, each created to close the gap between businesses and consumers.

Unity plans to "support and shape the metaverse" and will "emphasize content creation, cross-platform access, and narrowing the distance and reducing the friction between creators and consumers," according to CEO John Riccitiello. 

To further enhance its offerings, Unity Software announced plans to acquire Weta Digital, which will "put award-winning VFX [visual effects] tools and technology into the hands of millions of creators and artists." Weta's tools "built characters and scenes from the world's most iconic films such as Avatar, Lord of the Rings, and Wonder Woman," just to name a few. 

While investors are waiting for the metaverse to come to fruition, it helps to have a company that's already firing on all cylinders, and Unity Software definitely qualifies. In the third quarter, the company's revenue of $286.3 million grew 43% year over year, fueled by a 34% increase from its create solutions segment and a 54% increase from the operate solutions segment. At the same time, Unity cut its loss per share by half. For those concerned about the company's lack of profitability, consider this: During the quarter, it generated free cash flow of $34.2 million, up more than threefold compared to the $10.9 million it delivered this time last year.

Unity's customer metrics are robust as well. During the trailing-12-month period, the company had 973 customers that generated more than $100,000, up 32%. Perhaps more importantly, the company's dollar-based net expansion rate for the third quarter was 142%. Put another way, existing customers spent 42% more on the platform than they did in the prior-year quarter.

The metaverse is coming and is already attracting a lot of attention. Many of the key technologies are already in place and Unity is uniquely positioned to stake a claim in this once-in-a-generation opportunity.

Image source: Getty Images.

Zoom: Get ready to meet in the metaverse

Brian Withers (Zoom Video Communications): The video conferencing company that connected you to family, friends, and colleagues during the pandemic is powering up its virtual meeting to be an immersive metaverse experience. In September, Zoom Video Communications announced it was teaming up with Oculus to deliver its workroom product in a whole new way. Starting next year, users will be able to use an Oculus Quest 2 VR headset to connect with others in a virtual conference room with a shared whiteboard, as if they were in the room together. This is a small step for the video conferencing specialist to make metaverse meetings a regular thing.

Having virtual meetings like this every day may still be a ways off, and the company is continuing to grow even as businesses are finding their way back into the office. In its most recent quarterly report, revenue topped $1 billion for the second time and grew 35%. That figure is even more impressive when you note that it is building on a staggering 369% growth in the previous Q3. Large customers with annual recurring revenue (ARR) of more than $100,000 are powering this growth with a solid 94% gain year over year. Customers are also signing larger and longer contracts, driving Zoom's remaining performance obligations to grow even faster than its top line.

Data source: Company earnings presentations. QOQ = quarter over quarter. YOY = year over year. 

The stock has taken a hit since the height of the pandemic and is down over 60% from its high. This drop has brought the price-to-sales ratio down to 17. This is the lowest it's ever been since the company went public in April 2019. Savvy investors know that stock performance doesn't always follow business results in the short term, but over longer periods of time it does. 

With businesses looking to adopt hybrid work situations (employees working from the office and remote), Zoom's video meetings are here to stay. The company's constant focus on improving its platform, including its step into the metaverse, will help attract and keep customers over the long term. Investors would do well to pick up some shares of this video communications and soon-to-be metaverse-enabling specialist.

Image source: Getty Images.

Zynga: The stock that could soon gain profits from the metaverse

Will Healy (Zynga): Interestingly, Zynga has long tied itself to the metaverse. It launched its IPO while benefiting from a special relationship with the company now known as Meta Platforms.

That relationship ended in 2012, and the stock gained little traction until Frank Gibeau became CEO in 2016. Under his leadership, the maker of Farmville and Words With Friends added franchises and enhanced Zynga's ability to support games across multiple platforms with the purchase of Echtra Games.

Moreover, the company has turned in-game advertising into an increasingly important revenue source. This allowed the company to derive revenue from its 2020 purchase of Rollic, a maker of hypercasual games, which are free-play games with minimalistic interfaces.

Zynga also increased its ad-based profile by buying Chartboost, a platform Gibeau described as an "increasingly important competitive advantage" on the Q3 2021 earnings call. Its software connects marketers to audiences through ads.

With that help, Zynga grew its ad revenue 99% in the most recent quarter, likely due to this increased emphasis on monetizing ads. Overall revenue for the first nine months of the year came in at $2.1 billion, surging 55% compared with the first three quarters of 2020. The company has also pared losses in the first three quarters of 2021 to $37 million, an improvement from the $376 million lost during the same period in 2020. Slower growth in expenses helped to dramatically pare losses.

Despite these results, Zynga has struggled this year. Investors dumped the stock following second-quarter earnings as slowing growth amid reopenings hammered the company. Amid a steady sell-off since February, it has lost almost half of its value. Additionally, the slowing growth may continue as the company predicts only 10% higher revenue in Q4 versus the same quarter last year.

Nonetheless, the stock price decline has also taken its price-to-sales (P/S) ratio to just 2.6. This is down from over six early in the year, and peers like Activision Blizzard and Electronic Arts support P/S ratios above five.

With that drop, investors have a chance to buy at a substantial discount. As Zynga becomes more adept at connecting with gamers and advertisers, it could benefit investors long term.