The metaverse is a hot investing topic of late, partially driven by Mark Zuckerberg's decision to rename Facebook as Meta Platforms. Zuckerberg's move is a bet that the metaverse becomes a major force over the next decade, and he's not alone in thinking this concept has a future.
If the metaverse does develop into something as big as Zuckerberg thinks it will, both Matterport (MTTR 4.20%) and Unity Software (U 10.57%) stand to benefit immensely, making now a great time to take a closer look at possibly investing in these stocks. Both stocks are trading down more than 30% from their all-time highs set in 2021, and with the rapid growth of the metaverse and their respective industries, these two stocks have real potential for a nice bull run in 2022.
Matterport is a sneaky metaverse play. The company sells 3D imaging technology that allows businesses to create "digital twins" of physical spaces to upload and analyze on the cloud. Matterport helps hospitality companies share images and give virtual tours of homes or rooms for guests. As the only player in the space that does this for dozens of industries ranging from hospitality to insurance, Matterport has gained over 439,000 customers.
This technology could be incredibly useful in spurring the growth of the metaverse. For individual users who want to bring an image of their favorite park or a part of their house to the metaverse, all they would have to do is take a 3D picture of it with Matterport. The company's technology is available on most smartphones, so doing this is extremely easy for users. If the metaverse becomes mainstream and billions of people use it, Matterport's business could explode.
Even without the metaverse, however, Matterport has great potential as an investment. Management projects it has a $240 billion market opportunity in its current industry. As the first mover and market leader in this 3D capture space, Matterport could grow rapidly. As of Sept. 30, the company was generated $111 million in annualized revenue, leaving an extremely large opportunity ahead of it. As the world becomes more digital and both consumers and companies want to do more in the cloud, Matterport's products could become more critical to business operations.
With all this potential, the business also comes with a high valuation and some stock price volatility. The company went public through a merger with a special purpose acquisition company (SPAC) that was initially announced in February and finalized in mid-July. Since finalizing, shares are up about 11%, but they are also about 52% down from 52-week highs set in late November. Yet the company still trades at over 34 times its annualized revenue -- an extremely high multiple.
In 2022, shares could once again be on the rise if the metaverse continues gaining traction. For long-term investors willing to wait and see if the metaverse pans out, the rewards could be immense.
2. Unity Software
While Matterport could help build scenery and locations in the metaverse, Unity Software has the potential to provide the foundation for the companies creating the metaverse. The company currently offers game developers software to build, monetize, and operate their video games, regardless of platform, and adjusting the software to allow developers to build a metaverse shouldn't be much of a stretch. CEO John Riccitiello recently told analysts that Unity is working to have between 60% and 80% of metaverse content built using Unity's software.
Like Matterport, Unity has a robust business model even without the metaverse. The company is a leading game development platform, with around 71% of the top 1,000 mobile games being created with Unity's platform. The company has over 1.5 million active developers on its platform, and Unity helps with more than just developing games but also monetizing them. Monetization efforts include ads and in-app purchase capabilities, which developers buy for a subscription. This segment is the largest part of Unity, bringing in 65% of its $286 million in third-quarter revenue. The company is growing incredibly fast, with its top line growing 43% year over year in Q3 and its full-year guidance estimating 40% top-line growth year over year.
Unity's strong past success, continued fast growth, and future potential, have combined to make the stock somewhat expensive. Shares trade at 39 times sales, which is higher than other video game stocks like Activision Blizzard, which trades at six times sales.
The biggest risk for Unity involves its current lack of profits. The company lost $115 million in Q3, a hefty amount of money considering its Q3 revenue was just $286 million. However, this net loss decreased year over year from $145 million. Another good sign is that the company is free cash flow-positive, going from $11 million in free cash flow in Q3 2020 to $35 million in Q3 2021.
The stock is by no means cheap right now, but it is trading over 42% off its 52-week high. With companies that are executing well, there is rarely a time where shares are cheap, so now might be a good time to get in at a discount. With the massive opportunity coming from efforts to build out the metaverse, I think shares could rocket higher in 2022 and beyond.