Given the recent performance, investors may understandably have lost interest in the metaverse. Facebook parent Meta Platforms continues to make massive investments in this virtual world. But with revenue in its metaverse-driven segment Reality Labs declining in 2022, investors appear to have cooled to its virtual world.
Nonetheless, given its ability to help users understand the natural world better, the metaverse continues to hold tremendous potential to drive revenue growth. Two companies that could prosper amid these improved perceptions are Apple (AAPL -0.60%) and Unity Software (U 1.15%).
Apple
Apple has become more of a metaverse-oriented company than some might assume. As the world's largest augmented reality (AR) platform, it has manufactured hundreds of millions of AR-capable devices and thousands of apps.
Now, it appears positioned to take this technology one step further. According to multiple reports, its headset, which is currently in development, does not utilize a controller. Instead, it relies on hand and eye-tracking technology to detect movement.
Admittedly, at a rumored retail cost of $3,000, it may only attract serious attention from high-end consumers. However, if rumors of a cheaper second-generation model also prove true, it presents a serious challenge to Meta, which appears to have become reliant on this space to develop a new growth engine.
Moreover, Apple's headset would become the first new product since it released the Apple Watch in 2015, a factor that could invigorate Apple's revenue. At $117 billion for the first quarter of fiscal 2023 (which ended Dec. 31), revenue fell for the first time since 2019, dropping 5% year over year. The decline was caused primarily by a drop in product sales, which fell by 8%.
Nonetheless, Apple stock held up relatively well amid the tech bear market of 2022, falling by less than 10% as many tech stocks lost most of their value. Also, its price-to-earnings (P/E) ratio of 25 has dropped steadily from a peak of over 40 at the height of the pandemic. Given these conditions, a metaverse-driven product may just be what Apple needs to reinvigorate growth.
Unity Software
For investors up for a riskier stock, Unity's real-time development platform has evolved into one of the primary building blocks of the metaverse. Its development software is likely best known as a gaming-development platform. However, the metaverse is likely the platform where Unity will reach beyond gaming, helping it to target industries such as architecture, automotive, and film.
Additionally, Unity acquired app-development company ironSource in November. Through ironSource, Unity can now make the game-development process more interactive. Consequently, developers can gain much faster feedback from players, making it easier to create games that customers actually want.
Still, for all that promise, the software-as-a-service (SaaS) stock became one of the more notable victims of the bear market, and the stock fell by almost 90% from its 2021 high.
Also, the recent financials probably make it more of a buy for the long term. The $1.4 billion in revenue that the company generated in 2022 was a 25% increase from 2021. However, the customer count for those who spend more than $100,000 appears to have experienced flat growth last year, putting aside the ironSource acquisition. Revenue growth also did not prevent the company's net loss from increasing to $919 million from $533 million in 2021.
Such news implies the stock will struggle in the near term and, due to the lack of GAAP profitability, will not give Unity a P/E ratio. However, at a price-to-sales (P/S) ratio of 7, its valuation is just above its record lows. That lower valuation may help ease the pain of going into a stock that's admittedly more speculative. But considering Unity's increasingly critical role in the metaverse, a buy right now could bring outsized gains later.
