Analysts aren't dialling down the hype when it comes to metaverse stocks. Orlando Bravo has declared that the metaverse is not only investable, but destined to be huge, and several stocks look to make big gains.
Morgan Stanley analyst Brian Nowak thinks the metaverse has an $8trn addressable market. In fact, analysts at Morgan Stanley think it could be the next generation of social media, gaming and streaming.
Estimated addressable market for the metaverse
A big claim for an idea not readily understood and perhaps best described as the internet experienced through AR and virtual reality. Maybe. And despite the metaverse being unheard of outside of niche circles only a few months ago, there’s plenty of ideas on what stocks could benefit.
Metaverse stocks investors should consider:
Meta (aka Facebook)
Meta [FB] (previously known as Facebook) is one of the more obvious metaverse stocks to own, although that doesn’t mean it’s not a good one.
“We remain positive FB primarily because of the still under-appreciated core business growth, durability and free cash flow into ’22,” wrote Morgan Stanley analyst Brian Nowak. “This is even through an estimated $13.6bn of investment in the metaverse in ’22to build the next generation version of social networking.”
Along with Facebook’s very public rebranding as Meta, the sheer size of the social media’s audience gives it a huge upper hand. JPMorgan analyst Doug Anmuth has a $390 price target on the metaverse stock, believing Facebook’s 3bn members gives it the installed base to make its meta-vision work. BofA has an even higher $400 price target on the stock.
“We remain positive FB primarily because of the still under-appreciated core business growth, durability and free cash flow into ’22” - Morgan Stanley analyst Brian Nowak
Unity [U] offers a SaaS platform providing developers with the tools to create online worlds. The technology powers 70% of all mobile games and is used by developers to provide physics, lighting, animation and more. Unity is also used by developers of console video games to create realistic worlds.
According to CEO John Riccitiello in an interview with CNBC, Unity provides the ‘underlying toolset for creating the metaverse’. It also provides a set of services around monetisation, analytics and hosting for those operating businesses.
Unity posted revenue of $286.3m in the third quarter, up 43% from the $200.8m seen in the same period last year. Promisingly, the company raised its full year guidance to between $1.08bn and $1.09bn.
“In a scenario where the metaverse attracts large numbers of content creators beyond gaming (e.g., to build virtual stores, 3D models of homes etc.), we believe U could serve as a true ‘picks and shovels’ business for an audience beyond (and including) its current core of game developers and artists,” said Nowak.
Like Meta, gaming platform Roblox [RBLX] could leverage its 47m daily active users to make its mark on the metaverse, especially with related advertising and sponsorship opportunities. The company has a young audience and is a leader in creating virtual experiences.
Number of daily active users Roblox could leverage into metaverse services
However, while Roblox’s share price is up 36% over the past month (through 23 November), it has recently experienced a downturn and is off its 19 November high. It also carries a high forward price to earnings ratio and Tuesday’s close of $114.87 is marginally above the analyst average price target of $114.4, according to Yahoo Finance.
Analysts at Morgan Stanley reckon that the metaverse concept could really take off should Apple [AAPL] enter the space. While this is speculation right now, Apple’s brand appeal could be enough to persuade sceptical punters to don the necessary gadgets needed to immerse themselves in online worlds. Apple has form waiting for a market to mature before entering - the cash cow that is the iPhone was launched several years after the first smartphone.
“The benefit of Apple’s more patient approach to entering new markets is that the chances of success increase with a more informed approach to disruption,” wrote Morgan Stanley technology analysts Katy Huberty and Erik Woodring.