The metaverse has created quite a buzz as companies and investors scramble to stake a claim in this digital gold rush. Yet this conceptual reality remains largely in the ether, not yet grounded in reality. So what exactly is the metaverse?
In simplest terms, the metaverse combines a number of emerging technologies -- including augmented reality (AR) and virtual reality (VR) -- with elements of ubiquitous tech like social media and video, resulting in an immersive digital world where users can work, play, shop, and socialize. Bulls are calling the metaverse the next evolution of the internet, providing a network of always-on virtual spaces where people can interact.
Naturally, investors are looking for a way to profit from this quickly evolving landscape of what many think will be "the next big thing." Let's look at three successful companies that will benefit from the vast opportunities in the coming metaverse.
Nvidia: Powering the metaverse
No discussion regarding the metaverse would be complete without the processing power necessary to bring the idea to life, and that's where Nvidia (NVDA -1.11%) comes in. Its graphics processing units (GPUs) are the undisputed industry standard for generating lifelike images in video games, giving it a leg up in the metaverse.
The humble GPU has a superpower that will make it a foundational technology in the digital realm. Parallel processing allows GPUs to process a multitude of complex mathematical calculations simultaneously and at lightning-fast speeds.
This capability ushered in the era of artificial intelligence (AI), making Nvidia GPUs the workhorse in every major cloud computing operation and in a growing number of data centers. The evolution of the metaverse will require similar speed and precision, making Nvidia's state-of-the-art semiconductors the obvious beneficiary.
Yet even if the metaverse takes years to materialize, Nvidia continues to grow like wildfire. During the first nine months of this year, Nvidia's revenue climbed 65% year over year, driving its earnings per share up 132%. Nvidia generated revenue of roughly $16.7 billion last year, but that's a drop in the ocean compared to its total addressable market, which management estimates will top $250 billion by 2023.
The incredible potential offered by the metaverse is merely icing on the cake for long-term shareholders.
Unity Software: Creating the metaverse before our eyes
While it may not be a household name, Unity Software (U 2.92%) is well-known among the gaming and developer communities. The company provides a set of software tools that helps developers create, run, and monetize interactive, real-time 2D and 3D content for mobile phones, tablets, PCs, and consoles, as well as AR and VR devices. These tools will create the real-time graphics underlying the metaverse.
Unity recently advanced these goals with the acquisition of certain assets of visual effects specialist Weta Digital, the brainchild of filmmaker Peter Jackson (The Lord of the Rings and The Hobbit trilogies). Weta Digital helped create the visuals for iconic content including Avatar, The Avengers, Game of Thrones, Planet of the Apes, Suicide Squad, Black Widow, and more. By adding Weta's tools to its creative offerings, Unity is hastening the coming of the metaverse.
But Unity Software doesn't need the metaverse to be a success, as evidenced by its third-quarter results. The company generated revenue of $286 million, up 43% year over year. At the same time, Unity delivered a loss of share of $0.41, cutting its red ink by more than half. Not only did the company beat expectations, but it raised its full-year outlook. Unity is now expecting revenue of about $1.08 billion, up roughly 40% at the midpoint of its guidance.
Annual metrics help complete the picture. Games created on Unity's platform represented 71% of the top 1,000 mobile games in the fourth quarter of last year. Unity closed out 2020 with monthly active users of 2.7 billion, up 63% year over year. At the same time, applications built with Unity were downloaded 5 billion times per month, up 41%.
Whether the metaverse takes a year or a decade to spring to life, Unity Software will prosper either way.
Matterport: Mapping physical spaces to create digital replicas
Matterport (MTTR -10.62%) is another company without name recognition, but it will be critical to this new era of the Internet. The spatial data company uses 3D cameras to capture and digitize real-world spaces, then creates dimensionally accurate and photorealistic virtual replicas. This process provides customers with the insight to manage spaces more effectively. But that's just the beginning.
Matterport recently announced strategic partnerships with cloud titan Amazon and Meta Platforms' Facebook AI Research (FAIR). Additionally, the company released Matterport for Mobile, putting its 3D capture tools in the hands of anyone with a Google Android phone by Alphabet or an Apple iPhone.
Its specialized offerings mean Matterport is currently serving a niche market, but one that has the potential to grow exponentially. For the first nine months of this year, the company generated total revenue of $84 million, up 35% year over year. Subscription and license revenue grew even faster, up 54% to roughly $49 million.
It's important to note that Matterport has only been a public company since July, so it's still very much in its early stages. Thus, its operating expenses outpaced revenue so far this year and it continues to burn cash. This should abate over time as the company leverages its digital software aspirations.
Matterport uses a freemium model to attract paying customers. For the first nine months of this year, its total subscriber count of 439,000 more than doubled, growing 116%, massively expanding its potential customer pool. At the same time, paid subscribers climbed 35%. Additionally, its net dollar expansion rate was 114%, meaning the existing customers spent 14% more than in the prior-year period.
Management estimates Matterport's total addressable market at $240 billion -- and that's before any potential contribution from the metaverse. The company has also positioned itself for the coming digital realm and its tools will likely play a key role in mapping out the new digital world.
There's real opportunity in the virtual realm
The metaverse has yet to make its way from the drawing board to reality, but many of the necessary components are already in place -- and the opportunity is significant. Morgan Stanley analyst Brian Nowak estimates the metaverse will be worth roughly $8 trillion, so there's plenty of potential profits to go around.
The metaverse could propel each of these companies -- already successful in their own right -- to new heights, and help make investors richer in 2022, and for decades to come.