The potential of the metaverse is gaining a growing level of attention as companies across the tech industry seek to capitalize on what is expected to be the next big tech trend. Should it play out as hoped, this network of persistent virtual reality worlds will generate a great deal of revenue for the companies that lead the revolution, and drive handsome returns for their investors.
Obviously, not all metaverse stocks will experience parabolic share price gains. However, Qualcomm (QCOM 0.10%) and Zoom Video Communications (ZM -1.88%) hold that potential.
1. Qualcomm
Qualcomm's share price could go parabolic and, in some respects, already has. It has risen by more than 200% over the last three years. Though its growth slowed to 20% over the past year, its role in the metaverse could be the next catalyst for its business.
Most tech investors know Qualcomm for the role its tech plays in powering smartphones. But, it has become an increasingly important company in the metaverse. Its chips power the Oculus Quest 2 VR headsets sold by Meta Platforms.
Moreover, at CES -- a technology showcase that was held in January, it announced a metaverse-related collaboration with Microsoft. This includes plans for a line of custom-built chips to power lightweight augmented reality glasses and software to link the Microsoft Mesh platform to Qualcomm's Snapdragon Spaces XR development platform.
Furthermore, Qualcomm continues to adeptly maintain its competitive moats in other areas. For instance, smartphone makers still can't make 5G smartphones without using a Qualcomm chipset. In addition, Nvidia's planned purchase of Arm Holdings was stymied by regulators, which prevented a major competitor from taking control of a critical component of many Qualcomm products.
Qualcomm did not break out revenue from VR headset sales. But the IoT segment to which it belongs makes up about 17% of the company's revenue currently, making it second in size only to its handsets division which encompasses smartphone chipsets. Also, the $1.5 billion in revenue for IoT surged 41% higher year over year, nearly matching the 42% increase in the handsets segment.
Additionally, given that its price-to-earnings ratio stands at only 19, it appears that investors have not priced the company's massive growth rate into this chip stock. By this valuation, it's trading at a significantly cheaper price than other tech sector powers such as Apple or Nvidia, which sell for 28 and 61 times earnings, respectively.
The low price-to-earnings ratio may also indicate that the stock has limited downside. In the recent tech sector sell-off, it has fallen by only 13% from its high. That suggests notable strength at a time when many metaverse stocks have lost over two-thirds of their value. This valuation, along with the ability of the chipmaker to help drive growth in the metaverse, could send investors rushing into Qualcomm stock.
2. Zoom
Online meetings are one of many activities that will take place in the metaverse, and Zoom intends to capitalize on this trend. Bill Gates recently speculated that most users would shift away from the "Hollywood Squares model" of online meetings and into metaverse settings using 3D avatars.
Still, the company that Bill Gates founded has so far failed to compete with Zoom, as have other established tech giants such as Cisco. According to Datanyze, Zoom held a 75% market share in web conferencing in 2021, far above Cisco's Webex at 7%.
Moreover, Zoom stands a better chance of holding on to that market share because of the metaverse. The company already utilizes Meta's Oculus headsets to provide a virtual meeting experience. The software can even mimic real-life hand gestures and allow users to move within the virtual room. This room also includes a whiteboard supported by Zoom. All participants can see and write to this whiteboard, further replicating an in-person meeting experience.
Such applications continue to support a company benefiting from rapid revenue and user growth. For its fiscal 2022, which ended Jan. 31., Zoom reported 55% revenue growth and a non-GAAP net income surge of 55%. Admittedly, in fiscal Q4, revenue growth slowed to 21% year over year, and the fiscal 2023 forecast points to only 11% revenue growth at the midpoint.
However, analysts predict the growth rate will increase in 2024, with revenue increases rising to 14%. Like the metaverse, segments such as Zoom Phone could drive the revival.
Zoom Phone added 550,000 paid seats in the latest quarter. Additionally, the number of customers with average recurring revenue (ARR) of over $100,000 rose 149% and those with an ARR of over $10,000 increased 122%. Although only about 2,700 customers spend more than $100,000 per year with Zoom, these customers now make up 23% of the company's revenue as of Q4, up from 18% in Q4 2020, showing growth potential within a lucrative segment.
Moreover, that drop over the past 16 months has taken its price-to-sales ratio to nine and its price-to-earnings ratio to 26, both of which are near record lows for the company. Such drops may be unjustified given that online meetings will likely become a permanent part of the workplace, and Zoom should continue its growth as the metaverse and products such as Zoom Phone reinforce that trend. Such potential makes it one of the no-brainer stocks to buy right now.