Interest in developing the metaverse has spiked in the past year with Goldman Sachs' analysts pointing out that companies could invest anywhere between $135 billion and $1.35 trillion in the development of this emerging technology. That's going to be a huge jump over the $10.4 billion that was reportedly invested in different metaverse components such as augmented reality (AR), virtual reality (VR), and gaming in 2021.
This could create a massive opportunity for investors to grow their wealth. Of course, investors will have to pick the right companies that could help build the metaverse or allow people to become a part of it.
Himax Technologies (HIMX -0.51%) and Matterport (MTTR 0.19%) are two companies that could win big from the metaverse in the long run, and their share prices are below $11 as of this writing. Let's see how the metaverse could supercharge these stocks.
1. Himax Technologies
Head-mounted displays (HMD) powered by AR and VR are going to open the window to the metaverse for consumers. Wearing an AR/VR headset can transport you to a virtual world where you can work, play, study, or socialize. This explains why big tech companies are in a race to develop advanced headsets that can deliver an immersive experience to customers and drive the adoption of the metaverse.
Himax Technologies provides a key piece of the tech that goes into these headsets -- liquid crystal on silicon (LCoS) microdisplays. The company claims that it is the leading player in the LCoS microdisplay market since 2012, having shipped more than 4 million units of these chips from its assembly line, which is equipped for mass production.
A third-party estimate points out that the demand for LCoS microdisplays is set to increase at a compound annual growth rate of 32% through 2024. This is not surprising, as these chips help manufacture headsets with higher resolution, contrast, and black levels compared to other technologies. More importantly, Himax is already collaborating with several companies involved in the development of these headsets.
It is also worth noting that Himax was one of the early movers in this space, as it used to supply LCoS microdisplays for Google Glass in 2013. Though Google Glass was ahead of its time and didn't click with customers, times have changed, and Himax now has a better shot at taking advantage of this space.
So the metaverse could act as an additional catalyst for Himax and boost the company's already-impressive growth. Himax's revenue in the third quarter of 2021 jumped 75% year over year to $421 million. The company's adjusted earnings jumped to $0.79 per share from $0.07 per share in the year-ago period. This terrific growth was driven by robust demand for Himax's display chips, which are used in several applications ranging from televisions to smartphones to automotive.
Himax is a top growth stock to buy right now, as the company's growth could get stronger on the back of emerging growth drivers such as the metaverse, and investors shouldn't miss the fact that it is trading at a dirt-cheap 5.8 times trailing earnings.
While Himax Technologies could enable customers to enter the metaverse by powering head-mounted displays, Matterport can help build the things that one sees inside the metaverse. That's because Matterport is a "spatial data company, focuses on digitizing and indexing the built world." In simpler words, Matterport creates a "digital twin" of real-world physical spaces.
For example, a company can use Matterport's solutions to create a three-dimensional virtual copy of its physical office space and upload it to the cloud. This, however, is just one of the many applications where Matterport's technology is witnessing adoption. Matterport points out that its technology captures 3D spaces across a wide range of industries including real estate, retail, travel and hospitality, facility management, architecture, and construction, among others.
Its technology is gaining adoption even before the metaverse has gained critical mass. Matterport had 439,000 subscribers for its service at the end of the third quarter of 2021, a huge increase over the prior-year period's subscriber base of 203,000. What's more, its paid subscriber base increased to 54,000 in Q3, up from 40,000 in the year-ago period.
The company had 6.2 million spaces under management at the end of the quarter, up 63% from the prior-year period. This indicates that more and more people are bringing their physical spaces online with the help of Matterport, which sells both subscriptions and hardware. The subscription business is the key growth driver for Matterport, as it produced 56% of the company's total revenue in Q3 at $15.7 million.
Subscription revenue was up 36% year over year and outpaced Matterport's total revenue growth of just 10%. The company clocked $27.7 million in revenue during the quarter, which indicates that it is in a nascent stage right now. However, investors shouldn't forget that subscriptions produced 46% of the total revenue in the third quarter of 2020, indicating that the company is focused on increasing this revenue stream.
By 2025, Matterport estimates that subscriptions will produce 86% of its total revenue, compared to 52% in 2020, accelerating the company's gross margin by 17 percentage points to 73%. More importantly, investors should look beyond the small amount of revenue that Matterport is currently generating, as the company says that it has an addressable market worth $240 billion.
With concepts such as the metaverse gaining traction, Matterport could witness a nice increase in the adoption of its solutions. So it is not surprising to see that analysts expect the company's top line to accelerate sharply.
Matterport is one of the best ways to play the metaverse opportunity, as it can provide the building blocks for this emerging tech trend.