According to cryptocurrency asset management firm Grayscale, the metaverse could create a market with a trillion dollars of annual sales. The digital space is being adopted across various verticals, ranging from advertising to e-commerce to hardware to digital events to socializing.
It wouldn't be surprising to see the metaverse generate such terrific annual revenue in the long run. It will create a parallel, virtual universe for people to interact in, conduct business, or attend live events. And there are several ways investors can benefit from the metaverse economy.
Meta Platforms (FB +2.06%) and Unity Software (U +5.66%) are two companies that would win big from the proliferation of the metaverse. More importantly, both stocks can be bought at enticing valuations right now following their massive pullbacks in 2022, which is an opportunity that investors may not want to miss as Wall Street expects them to double.
Let's see why these metaverse stocks could turn out to be solid buys right now.
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1. Meta Platforms
Down 38% in 2022, Meta Platforms is trading at 15 times trailing earnings. That's a big discount to the company's five-year average price-to-earnings ratio of nearly 30. Analysts, however, anticipate Meta to come out of this slump, as its median price target of $320 indicates, which would translate into a 54% upside from the stock's closing price on March 17. The high price target of $425 indicates that Meta stock could more than double from its current levels.
NASDAQ: FB
Key Data Points
The metaverse could play a key role in helping Meta Platforms deliver such solid upside. That's because the metaverse will open new channels for advertising companies to reach their target audiences. For instance, a live entertainment event within the metaverse -- such as a soccer match -- that could be attended by several thousand users across the globe would allow advertisers to serve ads to a large audience in real-time in the form of banners within a virtual stadium.
Not surprisingly, retailers are already looking to make a mark in the metaverse. Fashion giant Gucci, for example, has bought land within the metaverse to open its online concept store. Market research firm eMarketer estimates that digital ad spending could hit $785 billion in 2025, compared to $492 billion last year. By 2030, the digital ad spending market is expected to be worth $1.45 trillion, though the metaverse could help this space become much bigger in the long run.
The booming size of the digital advertising market thanks to catalysts such as the metaverse bodes well for Meta Platforms. The social media giant had 3.59 billion monthly active users across its family of apps at the end of December 2021, while daily active users stood at 2.82 billion. The company's full-year advertising revenue stood at nearly $115 billion, an increase of 37% over the previous year.
So Meta is a key player in the digital ad space, as it controls 23% of the market. Additionally, the company's massive user base puts it in a terrific position to tap the advertising opportunity in the metaverse. As such, it is not surprising to see that analysts expect the company's top line to increase at a nice pace in the coming years.
FB Revenue Estimates for Current Fiscal Year data by YCharts
In all, Meta Platforms' cheap valuation and its potential to step on the gas in the coming years make it an enticing tech stock to buy right now, especially considering that it could win big from the metaverse.
2. Unity Software
Unity Software is a pick-and-shovel play on the metaverse. The company is known for its Unity video game engine, which allows designers and creators to bring games to life, and its expertise in this market is expected to come in handy in metaverse applications as well.
NYSE: U
Key Data Points
Unity controls 48% of the video game engine market, and that places the company in a solid position to benefit from the development of the metaverse, where its existing expertise will come into play. That's because Unity Software provides a real-time development platform that allows creators to make three-dimensional worlds that can be consumed on smartphones, personal computers, tablets, consoles, and augmented and virtual reality devices.
Unity's solutions can be deployed across various industries, ranging from automotive and transportation to manufacturing, architecture, retail, and education. What's more, Unity's platform can also be used to create digital twins, which are virtual, 3D representations of physical objects. This feature should open a massive opportunity for Unity, as the digital twin market is expected to clock 35% annual growth through 2027 and generate more than $61 billion in revenue at the end of the forecast period.
As a result, Unity Software is sitting on a tremendous opportunity, as its platform can be used to create virtual worlds where people interact in the metaverse. The company is already delivering terrific growth, and the metaverse could supercharge the same.
Unity finished 2021 with $1.1 billion in revenue, an increase of 44% over 2020. The company anticipates its revenue will increase 35% this year to nearly $1.5 billion. Analysts expect Unity to maintain its terrific top-line growth momentum in 2023 as well, estimating 29% growth. What's more, the company's earnings are projected to increase at an annual rate of 69% for the next five years.
As such, it is not surprising to see that Wall Street has a median price target of $157.50 on Unity Software stock, which would translate into 70% upside from its closing price on March 17. The Street's highest price target of $194 means that Unity stock could double from its current levels.
The current pace of Unity's growth and the huge end-market opportunity it is sitting on could help it hit Wall Street's price targets. Additionally, Unity's pullback makes it an ideal metaverse stock to buy right now, as it is trading at 22 times sales, which is well below its last year's earnings multiple of 40. Of course, the stock isn't cheap even after losing nearly 40% of its value in 2022, but its eye-popping growth and metaverse prospects justify the rich valuation.
