The metaverse is getting a lot of buzz these days, and rightly so. The idea of digital worlds powered by virtual reality, artificial intelligence, and other computing technologies is a fascinating concept. It's still in its early stages, but the metaverse has the potential to transform a range of industries, including gaming, fashion, retail, and real estate, among many others.
It also has the potential to transform investors' portfolios as they look to capitalize on the rapidly evolving space. What makes this investing moment special is that many of the companies working to create the metaverse have stock trading down significantly in the past few months, creating real buying opportunities for long-term investors who know where to look.
Let's discuss two metaverse stocks that investors should be considering right now.
Image source: Getty Images.
1. Roblox
Roblox (RBLX -0.59%) is a software platform that enables its users to develop and create 3D online games that are played by other users. The company gained plenty of new users during the height of the pandemic as many people were forced to social distance and turned to video games to entertain themselves during lockdowns. Roblox is a great play on the metaverse -- the platform already offers a variety of games that embrace virtual worlds where remote people come together and interact using their computers and mobile devices.
As the worst effects of the pandemic have eased, it's had some effect on how much people access their Roblox accounts. The company posted a mixed first-quarter report for fiscal 2022. Total sales grew 38.8% year over year to $537.1 million, finishing in line with Wall Street estimates, but its negative $0.27 earnings per share represented a greater loss than expected. The platform's daily average users (DAUs) in Q1 increased 28.5% year over year to 54.1 million, and total hours engaged reached 11.8 billion, indicating 22.2% growth from a year ago.
A key metric to monitor for Roblox is total bookings, which refer to users buying the company's virtual currency, Robux, to purchase in-game items like avatars and clothing. Bookings aren't recognized as revenue until the Robux are actually used to purchase digital items. In Q1, total bookings fell 3.2% year over year to $631.2 million, meaning fewer users bought the company's digital currency than in the same quarter last year.
The gaming platform is facing difficult comparable metrics from a year ago, and investors can expect a slowdown in growth in the near future. That said, more users continue to join the platform, and engagement is rising. Once the company gets past these tough comparables, its metrics should start looking better.
The stock has shed 70% of its value year to date, making its valuation far more reasonable. Its price-to-sales ratio of 9.5 is near the cheapest its been since the stock went public. Long-term investors who want to benefit from the metaverse potential of the stock could be greatly rewarded for buying in now.
2. Nvidia
Nvidia (NVDA -10.01%) is well known for designing GPUs used in gaming, cryptocurrency mining, data centers, and other business applications, in addition to chip systems for a variety of products and tools. The company's products are vital components for building out the growing metaverse.
In its first quarter, the company generated $8.3 billion in revenue, representing a 46.4% rise year over year, and its adjusted earnings per share soared 49.5% to end at $1.36. Its non-GAAP gross margin expanded 90 basis points to 67.1%, and its adjusted operating margin climbed 255 basis points to 47.7%. For its full fiscal year 2023, analysts forecast Nvidia's total sales to surge 25.3% year over year to $33.7 billion, and earnings per share to jump 22.3% to $5.43.
These are awfully impressive growth rates, given the current macroeconomic environment, and yet the stock is down nearly 45% since the beginning of the year. Trading at 44.4 times earnings today, Nvidia shares appear quite cheap on a historical basis. Over a five-year span, the stock has pegged a mean price-to-earnings multiple of 59, suggesting that now is an ideal moment to buy the tech giant. Provided it's a highly profitable business and poised to thrive from the metaverse's growth, Nvidia seems like a no-brainer at current valuation levels.
