These companies are both focused on attempting to build the metaverse. They have crossed paths before as Meta Platforms, Inc (NASDAQ: FB) (formerly known as Facebook) reportedly attempted to buy Unity Software Inc. (NYSE: U), and with a multi-trillion-dollar opportunity which stock is a better investment?
Unity Software is a software development platform that powers over 70% of the top mobile games, driving growth, but other areas present colossal upside potential.
In Q3 2021, Unity's revenue exceeded expectations and increased by 43% year-over-year (YoY), reaching $286.3 million. Unlike many other companies, Apple's IDFA changes had little to no impact on revenue as it is not reliant on the specific identity of users. Instead, it gathers large amounts of data from its 2.8 billion monthly active users, creating 50 billion data events per day.
One of Unity's advantages, as it goes forward, is its optionality outside the gaming industry in areas such as automotive, architecture, aerospace, and more. It already counts companies such as Volkswagen, Lockheed Martin as customers and has an impressive dollar-based net expansion rate of 142%.
The company is a leader in AR/VR, which bodes well for its ambitions of giving the creators the tools to build the metaverse. Its most recent acquisition of visual effects company Weta Digital will enable it to provide tools and assets for creators to build the metaverse and expand its total addressable market by $10 billion.
Unity is still operating at a loss which stood at $126.8 million and is also trading at a rich valuation of roughly 55x price to sales. After its recent run-up, it would be no surprise if the stock took a breather.
Meta Platforms is the largest social media network company globally and turned heads with its rebrand focusing on building the metaverse.
Meta CEO Mark Zuckerburg has said, "I believe the metaverse is the next chapter for the internet." and it has roughly one-fifth of its employees working to turn this into a reality. Its acquisition of AR/VR headset maker Oculus in 2014 was the first step towards this, and it has since released 'Horizon Workrooms' for virtual remote work. It also has aspirations to bring touch and feel to the metaverse with what it calls ReSkin.
Although Meta is building for the future, its current business in social networks remains strong, with approximately 1.93 billion daily active users. It reported revenue growth of 35% YoY to $29 billion in Q3 along with a net income of $9.3 billion.
From anti-trust to whistleblowers, the company has been amidst a public relations crisis in recent times. In addition, people have raised their concerns regarding allowing Meta to control the metaverse, given their previous handling of social responsibilities.
Unity is a better buy today due to its optionality and potential upside, which is greater as it is a smaller company. In addition, it has not faced the same scrutiny and issues as Meta has.
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