With last year's direct listing of Roblox (RBLX 0.92%) and Facebook's name change to Meta Platforms (FB 0.35%), the metaverse took a few more steps into the limelight. The growing trend is emerging as a real investment opportunity that every investor needs to pay attention to.
The metaverse is viewed as the next step of the internet, or Web 3.0. Where Web 2.0 saw the rise of mobile computing and social media platforms, Web 3.0 will see the emergence of virtual experiences, such as virtual sporting events, meeting rooms, and other immersive experiences where people communicate, play, and work. Many industries could benefit from this new technology.
Image source: Getty Images.
Goldman Sachs estimates the development of the metaverse will cost anywhere from $135 billion to $1.35 trillion over the next several years.
Here's why Roblox, Meta Platforms, and Microsoft (MSFT +1.47%) are my three favorite metaverse stocks to buy right now.
1. Roblox
The metaverse could have a wide variety of use cases across all industries, from gaming to manufacturing. But looking at the opportunity from the entertainment side, Roblox is well-positioned to be a leader. It ended November with 49 million daily active users that can access the platform from PCs with virtual reality equipment, game consoles, and mobile devices.
Roblox makes money from a virtual currency (Robux) that is used to access new experiences and buy virtual items for personal avatars. Revenue more than doubled in the third quarter, with daily active users up 31%.
Roblox is not just about games for kids, either. Music artists are hosting live virtual concerts to connect with fans and raise awareness for new albums. Netflix launched an experience on the platform based on the hit show Stranger Things. Toward the end of last year, Nike unveiled Nikeland, with virtual tennis and basketball courts and other activities for users to spend time with.
Brands' interest in investing in new experiences on Roblox is a great sign for the stickiness of the platform. Investments by big brands are increasing its appeal and positioning Roblox to continue growing its base of users. Management's goal is to reach billions of users. Against this long runway of growth, the recent dip in the share price looks like a good buying opportunity.
Image source: Getty Images.
2. Meta Platforms
With 2.9 billion monthly active users on Facebook, Meta Platforms is a no-brainer metaverse stock. It's got a war chest of cash to spend on consumer products, such as Oculus virtual reality products, not to mention data centers and other necessary infrastructure to bring its metaverse ambitions to life.
Facebook has spent approximately $21 billion on data centers over the last decade to build a total of 18 in the U.S. and internationally, according to Goldman Sachs. It has plans to build as many as 70 more buildings.
Combine that with the company's move to split its financial reporting into two segments -- Family of Apps (social media) and Facebook Reality Labs (metaverse) -- and you can see how seriously CEO Mark Zuckerberg is taking this opportunity.
Meta Platforms is still putting up solid revenue and earnings growth, and the social media leader looks undervalued at a forward price-to-earnings (P/E) ratio of 21.
3. Microsoft
Microsoft is another reasonably valued tech stock that is well positioned to benefit from the development of Web 3.0. With its growing Xbox gaming business, the company's investments in cloud infrastructure with Microsoft Azure, and the development of the HoloLens mixed-reality headset, the software giant has all the pieces in place to capitalize on this opportunity.
HoloLens has been in development for many years. It is a headset with transparent glasses that lets the user see 3D objects in real space. It's not a consumer product, but is designed for businesses using 3D design as part of the manufacturing process. Elsewhere, Microsoft has plans to turn its Teams video conferencing app into a virtual experience using virtual reality and augmented reality goggles.
Of course, gaming will be a natural extension of the metaverse. Microsoft already has a potentially valuable gaming property that behaves like a metaverse in Minecraft. Plus, if the pending acquisition of Activision Blizzard is approved by regulators, it will significantly expand Xbox Game Studios' programming talent to build the 3D environments that defines the metaverse -- something the talented folks at Blizzard are pretty good at.
Microsoft trades at a forward P/E of 32, which looks attractive against expectations for double-digit growth across its business over the next several years.
