By now, most people have heard of the metaverse -- it's all over the internet. After all, this idea of a digital world backed by complex technologies like virtual reality (VR), augmented reality (AR), artificial intelligence (AI), and blockchain is an extraordinarily captivating subject matter. One area in particular that is intimately connected to the metaverse is the gaming industry. Not only will emerging technologies like VR and AR make video games more immersive for consumers, but they will also bring along a string of new monetization opportunities for the companies involved.

Unity Software (U -0.50%), a leading video game software development company focused on creating and operating interactive, real-time 3D content, is as pure of a play on the metaverse as they come. The company's stock price has collapsed 73% since the start of 2022 largely due to the broader tech retreat we've been seeing in response to high inflation and rising interest rates.

But now that the stock is down, should long-term investors climb on board in hopes that Unity Software will greatly benefit from the upward trajectory of the metaverse? Let's dive in to find out. 

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Image source: Getty Images.

What's happening with Unity Software?

According to its 2021 gaming report, Unity Software reigns over 61% of the game engine software market, suggesting that it's the clear leader in the industry. In its opening quarter of 2022, the company's total sales surged 36.4% to $320.1 million, and it generated a net loss of $0.60 per share, versus its $0.39-per-share loss a year ago. Its Create Solutions segment, which includes a set of tools for the development of real-time 2D and 3D content, shot up 65% to $116.4 million, and its Operate Solutions category, which allows customers to grow and engage their user bases regardless of whether the game was created in Unity, expanded 26% to $184 million.

During the quarter, the company faced several internal obstacles in its Operate Solutions segment that caused an unexpected slowdown in growth. The first was a fault in its platform that resulted in curtailed accuracy for its Audience Pinpointer tool, and the second was it lost the value of a portion of its data that notably disrupted operations. Put in simpler terms, the company confronted internal software issues that adversely impacted its performance as a whole. On the bright side, CEO John Riccitiello stated that the challenges were temporary in nature and would not affect the future prospects of the business beyond 2022.

For the full year, analysts forecast Unity's revenue to grow 22.3% year over year to $1.4 billion, and they expect its earnings per share will remain in the red at negative $0.26. In 2023, which is when existing headwinds should be resolved, the Street is expecting its top line to rise another 30.7% and its bottom line to enter green territory at $0.12 per share. At the moment, the gaming software stock trades at nine times sales -- not cheap, but much more enticing than its price-to-sales multiple of nearly 50 at the end of 2021. And given that the metaverse in gaming market is projected to skyrocket at a compound annual growth rate (CAGR) of 48% through 2030, Unity Software's fresh stock sell-off should grab the attention of long-term investors.

Should investors bet on this stock?

There's certainly a level of risk that comes with investing in Unity Software. The company does not have a history of profitability up to this point, and there's no guarantee that it will eventually generate a positive bottom line on a consistent basis. That said, it currently dominates more than 50% of the game engine software market, and its ongoing tieback offers investors a substantial margin of safety. But given its persistent growth and the shining future of the metaverse, I believe Unity Software is a long-term bet worth taking today.