The metaverse is one of the hottest emerging trends in the tech sector, but many promising companies with exposure to the space have seen dramatic sell-offs in recent months. A multitude of risk factors at play right now are causing investors to prioritize safer, predictably profitable businesses, and that's led to massive pullbacks for companies in the software industry.
For long-term investors looking to capitalize on the growth of the metaverse and the companies making the evolution of virtual worlds a reality, the dramatic sell-offs hitting the software industry have created opportunities to buy top players at big discounts. Let's take a closer look at two metaverse stocks that are worth buying in 2022 and holding for the long haul.
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1. Unity Software
Unity Software (U -0.54%) provides game-development engine services, analytics technology, and digital advertising tools. The company is the clear market leader when it comes to development engines for mobile games and virtual reality (VR) and augmented reality (AR) content, and it's poised for huge growth over the long term.
Unity's revenue grew 43% year over year in the fourth quarter to reach $315.9 million and 44% in the last year to reach $1.1 billion. For the current fiscal year, Unity is guiding for sales growth of roughly 35%. That guidance looks pretty encouraging compared to last year's performance and the levels of growth deceleration suggested by many other software companies' sales growth guidance.
Unity is providing tools that pave the way for the next evolution of interactive content, and the company is on track to play a key role in pushing the metaverse forward. Despite the promising long-term growth outlook, the company's share price is down roughly 63% from the highs it hit last November.
Now that the market has rerated the multiples it's willing to assign to software stocks, and Unity stock has pulled back, the company is valued at roughly 15 times 2022's expected sales. That's lower than at any point since the beginning of 2021, and I think the stock will be able to bounce back and hit new highs.
2. Roblox
While building a thriving metaverse platform is currently an ambition for many gaming and Big Tech companies, Roblox (RBLX 1.78%) has already found considerable success on that front. The company operates one of the world's most successful metaverses, and it ended the fourth quarter with 49.5 million average daily active users, which was up 33% compared to the prior-year period.
The company closed out last year with sales of $1.9 billion, up 108% on an annual basis. Meanwhile, bookings grew 45% to reach $2.7 billion. The metaverse leader also provided estimated updates on its January performance with its Q4 release, but results were somewhat mixed in the period, and the stock has lost substantial ground following the update.
January saw average daily active users (DAUs) come in at 54.7 million, which represented a 32% increase year over year, and hours engaged rose 26% year over year to reach 4.2 billion. However, the company estimates that bookings in the month were up only between 2% and 3% from the prior-year period, and average bookings per DAU actually fell between 22% and 23% to come in between $4.02 and $4.08.
The business is facing challenging growth comparisons and the slackening of pandemic-related tailwinds, and the market's increased aversion to growth-dependent companies that aren't currently posting significant profits has also contributed to big sell-offs. Roblox stock has fallen roughly 73% from its lifetime high, and the company now has a market capitalization of roughly $22.3 billion and is valued at approximately 7.2 times this year's expected sales. While the company could be pressured by near-term market volatility, the stock has the potential to be a huge winner for long-term investors.
