The stock market correction has turned ugly lately. What started with high-growth tech stocks has now escalated to include most companies amid deepened geopolitical tensions, growing inflation risks, and more.
While unpleasant, a market correction is also an opportunity for long-term investors to buy stocks in good companies with strong tailwinds. One way to do this is to invest in the leading companies in the emerging metaverse. Let's take a look at two companies that are likely winners in the virtual worlds of the metaverse.
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Roblox (RBLX 1.13%)
Nowadays, having a conversation about the metaverse usually begins with Roblox. It is one of the first companies to foray into the metaverse and has been one of the most successful. Just ask any youngster in the U.S., Europe, and other parts of the world about Roblox, and they will give you an elaborate explanation of its platform and the popular games on it.
The popularity of the Roblox platform is also evident in its numbers. Daily active users (DAUs) more than tripled from 15.8 million in the first quarter of 2019 to 49.5 million in the fourth quarter of 2021. Similarly, bookings surged more than fivefold from $142 million to $770 million during the same period thanks to an increase in DAUs and higher spending per user. In addition, the company has delivered positive operating cash flow in each of the last 12 quarters.
Roblox had some great runs in the past. But can it continue to grow in the future? I think so. For starters, the metaverse is here to stay. Technologies like virtual reality and augmented reality are becoming more mature. Improvement in supporting infrastructures like 5G connectivity, high-performance chips, and low-cost computing will help power the metaverse into the future.
Besides, major tech companies like Meta Platforms, Microsoft, and Alphabet are investing heavily in this emerging industry. So it's hard to imagine it not taking off. Even JPMorgan expects the industry to create a trillion-dollar yearly revenue stream.
As the top dog, Roblox already has a head start with around 50 million DAUs as of Dec 2021. Moreover, it has a community of loyal developers who have been growing with the company. By building better games, these developers will help Roblox attract new users and retain existing ones. A growing user base, in turn, motivates game developers to invest even more in building quality games.
Bottom line: I think Roblox can sustain its flywheel of growing user base and innovative games. And as the metaverse industry develops, the gaming company is well-positioned to benefit from potential new-use cases in areas like education, e-commerce, advertising, and others. It is not a company to miss if you want to ride the metaverse wave.
Unity Software
Unity Software is a game-development platform that enables game creators to create and run interactive and real-time 2D and 3D content on almost any platform, including virtual reality and augmented reality devices.
While Unity provides a suite of tools, its most important feature is its game engine. Think of it as software to build games. With Unity's game engine, developers can now create their games at a low cost and with a short development cycle. Unity also enables developers to operate their games on its platform through hosting, customer management, and monetization.
Game developers are pretty much locked into Unity's ecosystem, making it very difficult for them to switch providers. Even if they do switch, the other choice is Unreal Engine. That probably explains Unity's high net-retention rate of 140% in December 2021, up from 138% in 2020.
With a sticky customer base within a limited market, Unity is well-positioned as game developers move toward the metaverse. After all, developers are already familiar with Unity, which understands their needs. Unity just has to sustain its innovation around these needs.
On top of that, Unity is leveraging its software capabilities to develop strategic partnerships with companies beyond the gaming industry. For example, the software provider partnered with Hyundai Motor to improve the efficiency and productivity of the manufacturing process. It also worked with eBay so that sellers can offer customers an interactive, 360-degree view of the items for sale.
In short, Unity has strategically positioned itself to prosper in the growing metaverse. And if investors have an opportunity to buy the stock on the dip (during a market crash, for example), they should grab it.
