Llike it or not, the metaverse is coming. It’s still unclear if this will have a significant impact in the real world over the next five years, but companies have started building metaverse apps bracing for the inevitable and investors have shown increased interest in related stocks. .
Since no one knows what the metaverse will contain, the investment opportunities are wide. Selecting companies focused on the metaverse can be risky, as most have no other revenue-generating vertical. The best option right now might be to find stocks like Unity software (NYSE: U), Match group (NASDAQ: MTCH), and Autodesk (NASDAQ: ADSK) who have metaverse use cases as well as real world applications to generate the revenue needed to fund their expansions. Let’s take a closer look at these three actions.
Image source: Getty Images.
1. Unity software
Without realistic graphics, the metaverse will probably never be counted. Unity Software’s 3D animation software creates realistic representations that have use cases across multiple industries. Its main focus is video games, and it has the tools developers need to monetize and develop games. Augmented and virtual reality has enormous potential for Unity, and it is already integrated into architectural design software such as Autocad’s Revit.
In November, Unity acquired Weta Digital, a media company specializing in 3D creation, simulation and rendering. On Unity’s third quarter conference call, CEO John Riccitiello said, “We plan to deliver a cloud version of Weta to the millions of consumers who generate content every day on social and gaming platforms and on the Internet. Web or use the current vernacular. , the metaverse. “Unity sees an opportunity in the metaverse and acts to capture significant market share.
Third quarter results were strong; revenue increased 43% year over year and Unity increased the number of customers spending over $ 100,000 by 32% to 973. In addition, it maintained a high net retention rate by 142%, showing how customers are expanding their use of Unity offerings.
Management’s forecast for the full year includes breaking the $ 1 billion revenue mark. If Unity’s metaverse role becomes as big as it thinks it is, revenue will far exceed that level.
2. Correspondence group
Online dating has become entrenched in modern society. When someone introduces a loved one or spouse, claiming they met online is much less likely to be ridiculed. While Match Group has improved their dating platforms like Tinder and Hinge by adding video communications and voice samples to a profile, this is still an app with a match feature, not an actual simulation.
Shar Dubey, CEO of Match, spoke about a new product called Singletown on Match’s third quarter conference call. She described an area like a piano bar where people virtually gathered, but one person was playing the piano in real life. Instead of yelling at bar noises to get someone’s attention, users can click on the profile, adjust ambient noises, and have a meaningful conversation. This is just a metaverse app that Match has tested, but it could become the ultimate dating app if successful.
As new ideas emerge on the horizon, Match Group is reporting great results. Revenue eclipsed $ 800 million in the third quarter, growing 25%. Its most profitable region, Asia Pacific (APAC), increased the number of paid users by 36%. There is still a large catchable population, as the total number of payers in the Americas was 8.3 million compared to 3.3 million in ACPA.
After being spun from IAC / InterActiveCorp (NASDAQ: IAC), his balance sheet was loaded with debt. Match Group is reducing its debt and proved it by reducing its net leverage ratio from 4.6 times (June 30, 2020) to 3.3 times (September 31, 2021). It does this by channeling its free cash flow generated with a 28% margin to redeem exchangeable tickets.
Match Group is improving its balance sheet, growing rapidly and showing an exceptional option. This is a solid stock pick that will succeed regardless of the success of the Metaverse.
Engineers and architects use Autodesk’s flagship products to design buildings and other manufactures. Revit, a building information modeling (BIM) program, allows architects to visualize their designs and present them to clients. These creations can be turned into a virtual reality framework with plugins like Autodesk Rendering. It doesn’t take a lot of imagination to figure out how these products could be used in the Metaverse.
A few years ago, Autodesk switched to a subscription pricing model. Since then, the turnover has continued to increase.
ADSK Revenue (TTM) data by YCharts.
Businesses can no longer purchase Autodesk software and use it until it is upgraded. Instead, Autodesk requires an annual license, creating a recurring revenue stream.
This business model has given good results. In the third quarter, which ended Oct. 31, Autodesk’s revenue grew 18% to $ 1.12 billion, with subscription revenue accounting for 95% of the total. Margins were also strong, with operating margins of 17% (GAAP) and 32% (non-GAAP). Autodesk also provides investors with international exposure.
|Europe, Middle East and Africa||38.5%|
The share price plunged after the earnings release, hitting 15%. The massive sell-off can be attributed more to analyst expectations than management guidance, although Autodesk still forecast 15% growth. After the sale, Autodesk is trading at a price / earnings ratio of 47. Although it has recovered from its lows, Autodesk remains a solid buy with growth on the horizon.
Takeaway for investors
The size and what the metaverse becomes is only limited by the creator’s imagination. Fortunately, companies like Unity Software and Autodesk are designing the building blocks necessary for companies like Match Group to build their metaverse vision. Even if the metaverse fails, every business will still have a thriving business underneath. Growth investors should consider every stock in 2022 and beyond.
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Keithen Drury owns Autodesk, Match Group and Unity Software Inc. The Motley Fool owns and recommends Autodesk, Match Group and Unity Software Inc. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.