Metaverse news has been flooding the headlines ever since Facebook changed its name to Meta Platforms. Yet massive uncertainty is still associated with the internet's third iteration. No one knows how successful, if at all, the metaverse will be. Regardless, many stocks will benefit should it come to fruition.

Two companies providing metaverse services are CrowdStrike (CRWD 5.56%) and Unity Software (U -1.00%). Neither are going all in on the metaverse, but both stand to benefit if this innovation changes the world. Taking a more conservative approach to metaverse investing allows for greater upside with less downside. 

man experiencing the metaverse wearing a VR headset.

Image source: Getty Images. 

CrowdStrike: Securing the metaverse

Crowdstrike provides endpoint security software to secure network access points. It also has zero-trust protection for devices, identity, and now data after its SecureCircle acquisition. An advantage Crowdstrike holds over legacy providers is it was purpose-built for the cloud. As a result, it is a lightweight program employees can utilize from devices anywhere.

Right now, Crowdstrike does not have a purpose-built solution for the metaverse. However, its customers include video game companies like The Pokémon Company that are creating metaverse content. Providing security to these companies is critical since metaverse users don't want their data breached because the provider had poor security protocols.

Without any metaverse-driven catalysts, CrowdStrike has been growing fast. Third-quarter (ending Oct. 31) revenue increased 63% to $380 million, and annual recurring revenue grew to $1.51 billion. Even with this growth, CrowdStrike remains an unprofitable company. The company did produce free cash flow of $123.5 million, representing an impressive 32.5% free cash flow margin. With $1.9 billion in cash on its balance sheet, CrowdStrike stands ready to deploy its capital when it sees an expansion opportunity. 

Since CrowdStrike is the leader in its space and exhibits strong execution, it is highly valued. Even though it has shed nearly $100 from its stock price since mid-November, CrowdStrike's price-to-sales (P/S) ratio remains lofty at 35. The cybersecurity space is full of competitors like SentinelOne and Microsoft. However, CrowdStrike continues to be named as a leader in Gartner's Magic Quadrant for Endpoint Protection Platforms and occupies the top spot for Completeness of Vision.

Crowdstrike is a quick-growing security provider helping protect many companies not necessarily involved in the metaverse. Still, it has a compelling investment case without the metaverse. Expanding into the metaverse will only increase its addressable market.

Unity: Visualizing the metaverse

Unity software represents a more direct metaverse investment case. Its software allows creators to make 2D, 3D, augmented reality (AR), and virtual reality (VR) content for several industries. While the historical use case for Unity has been video games, it is expanding into other verticals like engineering and architecture. If its software can make realistic environments in video games, it makes sense if Unity expands into visualizing products when presented to potential customers.

Unity's Q3 revenue growth was 43% and exceeded management expectations for the quarter. Customers spending more than $100,000 grew to 973 from 739, up 31.6%. Perhaps the most impressive metric was its dollar-based net expansion rate. Even though it was down from a comparable period last year, it was still an incredible 142%.

A partnership between Ultimate Fighting Championship (UFC) and Unity's Metacast was announced in Q3. The idea is to capture an event using 5 million voxels -- 3D pixels -- per second and recreate the 3D action in real time. This can be used to generate unlimited and impossible camera angles for consumers and broadcasters. Unity also believes this technology could assist officials in other sports. The use case could be huge for the metaverse, as a UFC viewer could virtually sit cageside while taking in the fight through a VR headset.

While Unity isn't profitable right now, management is projecting positive non-GAAP earnings per share and positive free cash flow in fiscal year 2023. Until then, investors will need to sit through market valuation swings when high-growth stocks with no earnings get punished by the market. Unity has more than $1.25 billion in cash and marketable securities on its balance sheet, more than enough to bridge the gap between now and FY23.

Similar to CrowdStrike, Unity carries a hefty P/S ratio of 40. With the recent sell-off, this metric has been reduced to levels seen earlier this year, but still well above where Unity has traded for most of 2021. For CrowdStrike, it is the cheapest it has been during 2021.

CRWD PS Ratio Chart

CRWD PS Ratio data by YCharts

Both companies will have some effect on the future metaverse. Should the metaverse implode, CrowdStrike and Unity Software will still be successful investments. These stocks are not for investors who cannot stomach volatility, as both have seen more than 30% drawdowns from their highs in 2021.

Still, investors should take opportunities to purchase these stocks on sale when the market presents a chance. While the metaverse's success remains a question, CrowdStrike and Unity have accomplished much and will continue to be a force in their respective industries.