The metaverse, which is still in its embryonic stage, is visualized as comprising an expansive network of digital spaces enabled by advanced technologies such as augmented reality (AR), virtual reality (VR), and mixed reality (MR). Several tech companies are investing heavily in this area, given its solid growth prospects.
According to economic experts at Analysis Group, the metaverse could contribute 2.8% to GDP in the 10th year after its adoption begins. And if commenced in 2022, its adoption over the next 10 years could lead to a $3-trillion contribution to global GDP in 2031. Also, it is expected that the metaverse's evolution could increase demand for devices such as VR headsets, MR headsets, HUD, HMD, smart glasses, and smart helmets. The metaverse market size is projected to reach $426.9 billion by 2027, growing at a 47.2% CAGR. However, not all companies working in this space have performed well in the last reported quarter.
Recently, Roblox Corporation (RBLX) and Unity Software Inc. (U) reported disappointing results. Furthermore, considering these companies’ weak fundamentals, we think they are best avoided now.
Roblox Corporation (RBLX)
Headquartered in San Mateo, California, RBLX develops and operates an online entertainment platform. The company delivers Roblox Studio, a free toolset that permits developers and creators to build, publish, and operate 3D experiences and other content; Roblox Client, an application that allows users to explore 3D digital world; Roblox Education for learning experiences.
RBLX’s stock plunged after the videogame company missed Wall Street's expectations for its first quarter adjusted revenue and reported a wider-than-expected net loss. The company reported adjusted revenue of $631.2 million, which was down 3% from the first quarter of 2021. Analysts polled by FactSet had forecast adjusted revenue of $655.7 million. Also, RBLX's net loss grew to $160.20 million, which was larger than the $68.00 million consensus estimate.
During the first quarter, ending March 31, 2022, RBLX's loss from operations grew 12.3% year-over-year to $151.61 million. Also, the company's total cost and expenses increased 32% from its prior-year quarter to $688.75 million.
RBLX's consensus EPS is expected to remain negative in the second quarter, ending June 30, 2022. The $664.34 million revenue estimate for the quarter indicates a 0.2% decline o year-over-year.
The company's shares have plunged 68% year-to-date and 69.4% over the past six months.
RBLX's POWR Ratings are consistent with this bleak outlook. The stock has an overall D rating, which equates to Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
RBLX has an F grade for Stability and Sentiment. Within the D-rated Entertainment - Toys & Video Games industry, it is ranked #20 of 23 stocks. To see additional POWR Ratings for Value, Growth, Quality, and Momentum for RBLX, click here.
Unity Software Inc. (U)
Headquartered in San Francisco, California, U creates and operates an interactive real-time 3D content platform. Its platform provides software solutions to create, run, and monetize interactive, real-time 2D and 3D content for mobile phones, tablets, PCs, consoles, and augmented and virtual reality devices.
U reported fiscal first-quarter results largely in line with Wall Street forecasts but issued poor second-quarter and fiscal year revenue guidance. U expects second-quarter revenue of between $290 million and $295 million versus $360 million on average expected by analysts polled by FactSet.
For the first quarter, ending March 31, 2022, U's loss from operations grew 54.3% year-over-year to $171.16 million. Its net loss grew 65.2% from its year-ago value to $177.56 million, while its loss per share grew 53.8% from its prior-year quarter to $0.60. Its total operating expenses rose 38.5% year-over-year to $397.45 million.
U' EPS is expected to remain negative in the second quarter ending June 2022. The company's shares declined 72.7% year-to-date and 69.7% over the past nine months.
U's weak fundamentals are reflected in its POWR ratings. The stock has an overall D rating, which equates to Sell in our POWR Ratings system. The stock has a D grade for Momentum, Value, and Sentiment. In the Entertainment - Toys & Video Games industry, it is ranked #18.
In addition to the POWR Ratings grades I have just highlighted, one can see the U’s Quality, Growth, and Stability ratings here.
RBLX shares were trading at $32.42 per share on Monday afternoon, down $0.55 (-1.67%). Year-to-date, RBLX has declined -68.57%, versus a -15.30% rise in the benchmark S&P 500 index during the same period.
About the Author: Spandan Khandelwal
Spandan's is a financial journalist and investment analyst focused on the stock market. With her ability to interpret financial data, she aims to help investors evaluate the fundamentals of a company before investing.
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