Best Metaverse Stock: Roblox vs Unity Software

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Investors can benefit in several ways from the metaverse, an emerging technology trend that aims to connect people located anywhere on Earth in a three-dimensional virtual world.

Roblox (RBLX -11.51%) and Unit Software (U -12.14%) are two companies that could help make the metaverse a reality. Roblox provides a platform for developers to create, publish, and operate 3D experiences, and allows users to consume those experiences on different types of devices. Unity Software, on the other hand, enables developers, creators, artists, engineers, designers, and architects to create interactive, real-time 3D content.

In simpler terms, Roblox and Unity Software are both pick and shovel games on the metaverse as they are in the business of creating 3D content such as virtual worlds and digital twins. Which of these two metaverse stocks should you buy right now? Let’s find out.

Image source: Getty Images.

The case of Roblox

The adoption of 3D virtual worlds is already rubbing off positively on Roblox. The company had a strong 2021 with revenue up 108% to $1.9 billion and daily active users up 40% to 45.5 million. Additionally, the company’s daily active user base grew to 55 million in February, up 28% year-over-year.

It’s also worth noting that Roblox users spent 41.4 billion hours on its platform last year, a 35% increase from the previous year. The company’s strong user base and commitment is why big names from musician David Guetta to the NFL are using its platform to boost their presence in the metaverse.

Meanwhile, the company’s virtual currency, known as Robux, is already hugely popular. Users can purchase Robux to upgrade their avatars in virtual worlds, using virtual currency to purchase in-game items that can range from clothing to accessories and even pets. Roblox users spent $2.7 billion last year buying Robux, which is reflected in the amount of the company’s bookings.

In total, Roblox’s ecosystem of 29 million developers, 11 million virtual experiences, a huge user base, and a popular virtual currency make it an ideal platform for brands looking to break into the the metaverse. Nike, for example, has already created a virtual world on Roblox. Other brands such as Forever 21, Vans and Ralph Lauren also leveraged Roblox to foray into the metaverse.

The metaverse is expected to grow at an annual growth rate of 47% through 2029, according to a third-party estimate. So, as more users enter the metaverse, more businesses would be encouraged to jump into the virtual world and expand Roblox’s addressable market. This explains why analysts expect Roblox to see impressive growth.

Chart of RBLX revenue estimates for the current fiscal year

RBLX revenue estimates for the current fiscal year data by YCharts

The case of Unity software

Unity Software is well known for its Unity video game engine, which is used by developers to create games that work on different platforms such as computers, consoles and mobiles. Unity is now leveraging its gaming expertise into the metaverse by focusing on creating real-time 3D content for various industries ranging from retail to architecture to automotive to creating digital twins , among others.

The good part is that the company’s non-gaming business is impressively gaining ground, indicating that it may already be benefiting from the metaverse. Unity reported a 70% increase in non-gaming revenue in 2021. Unity management said on the company’s February earnings conference call that non-gaming business accounted for 25% of the $326 million of revenue generated by the “creating solutions” segment in 2021. For comparison, the non-gaming business generated 20% of revenue for the creating solutions segment in 2020.

Leading companies use Unity’s solutions to create digital twins – virtual 3D representations of real objects. South Korean giant Hyundai Motors, for example, has partnered with Unity to create a digital twin of a real factory to use in its efforts to improve factory management, increase productivity and innovate the manufacturing process. Meanwhile, eBay uses Unity’s solutions to help “sellers showcase the actual item they are offering with our proprietary interactive 360° view.”

There were a host of other partnerships that Unity management discussed on the company’s most recent earnings conference call, indicating that its 3D rendering solutions are being adopted across various industries. Adoption of Unity’s solutions should ideally strengthen over time, as the metaverse is expected to drive demand for digital twins and other 3D applications. The digital twin market, for example, is expected to reach $48 billion in revenue by 2026, up from $3 billion in 2020.

Thus, Unity Software has a lot of room to increase its revenue. The company generated $1.1 billion in revenue last year, up 44% from 2020. It also expects to maintain momentum in 2022, with revenue expected to increase 35% amid its guidance range to reach nearly $1.5 billion. Additionally, analysts are optimistic about the company’s long-term prospects, as they expect its earnings to grow at an annual rate of 69% over the next five years.

But what is the best metaverse stock?

Roblox and Unity are growing at a good pace and seem on track to benefit from the metaverse. However, with a price to sales ratio of 11.1, Roblox is the most affordable choice for investors. Unity Software is much more expensive at 23 times sales, although it saw slower growth last year.

As such, investors looking for a relatively inexpensive metaverse stock may want to take a closer look at Roblox given its combination of better value and rapid growth.

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