The metaverse seems to be the latest investing megatrend that's caught the attention of investors and the news media. Before you discount this as just another passing fad, ARK Invest founder and respected technology pundit, Cathie Wood, told CNBC in December that the metaverse could be a “multi-trillion dollar opportunity” and that it will impact “every sector in ways that we cannot even imagine right now.” For savvy tech investors, this sounds like an opportunity that could be too good to pass up.
We asked three Fool contributors to highlight one metaverse stock they would buy right now without hesitation. They came up with Meta Platforms (NASDAQ:FB), Unity (NYSE:U), and Digital Realty Trust (NYSE:DLR). 
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1. Meta Platforms: The name says it all
Danny Vena (Meta Platforms): While the massive potential represented by the metaverse is certainly an appealing idea to investors, they will also want to exercise care. These all-encompassing digital worlds, — which will combine virtual reality (VR) and augmented reality and other technologies to create places where people can work, play, and shop — are still largely conceptual, making the prospect of investing in them somewhat risky.
Buying stock in a company that is already successful in another area will help ensure the opportunity cost isn't too high if the metaverse takes years to bring to fruition. Meta Platforms is just such an investment.
The social media company formerly known as Facebook stunned investors last October when it announced it was changing its name to Meta Platforms. The rebrand was meant to reflect the company's growing focus on “bringing the metaverse to life” and to let investors know that it was going “all-in” on the metaverse. CEO Mark Zuckerberg is predicting that more than 1 billion people will access the metaverse over the coming decade.
Meta Platforms has a head start on many of its peers, having already invested heavily in a number of gateway technologies that will eventually lead users directly into the metaverse. The Oculus virtual reality headset controlled more than 50% of the market to close out 2021 — more than all other rivals combined. The company is also collaborating with Ray-Ban on smart sunglasses, which include built-in headphones and cameras, allowing users to listen to music, make calls, and take photos and videos. Finally, Facebook Reality Labs — Meta's research and development arm — has developed haptic gloves that use air pockets to help users “feel” virtual objects, going where no headset has gone before.
Meta Platforms will have all the capital it needs to build out these digital spaces — and the tools needed to enjoy them — courtesy of its social media platforms: Facebook, Instagram, WhatsApp, and Messenger. In the third quarter, Meta's revenue grew 35% year over year to $29 billion, even in the face of headwinds resulting from Apple‘s stricter privacy policies. Meta generated more than $9.1 billion in profits and $9.5 billion in free cash flow.
Deep pockets of that magnitude will provide Meta Platforms with all the means necessary to keep investors happy while simultaneously working to bring the metaverse to life.
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Unity: Consider this metaverse content creator
Will Healy (Unity): Unity software bills itself as the “world's leading platform” for developing 3D content in real-time. Its product helps build varied applications within industries such as gaming, automotive, construction, and film and could serve as a key building block within the metaverse. With Brandessence forecasting a compound annual growth rate of 45% in the metaverse, Unity has positioned itself to prosper.
Also, it already plays a critical role in many of its industries. Apps built with Unity receive five billion downloads per month, and this software played a role in developing 50% of all video games and 71% of the top 1,000 mobile games.
Its cinematic features should also improve as the company acquired Weta software in December for $1.65 billion. This may turn into a strategic win for Unity as Weta's graphics were behind such films as the Lord of the Rings trilogy and The Suicide Squad. These tools and this talent should increase the sophistication of the visual effects available to Unity.
Additionally, the financials point to Unity's rising popularity. In the first nine months of 2021, it reported $795 million in revenue, 44% more than the same period in 2020. This growth helped boost the stock for most of 2021. However, investors began selling Unity stock following the Weta acquisition announcement, most likely because of the $1.5 billion in convertible notes sold to fund the deal. Now, Unity stock has fallen by almost 40% since the Weta announcement. At a price-to-sales ratio of 35, it remains significantly more expensive than Roblox, a peer in the gaming market selling for 26 times sales.
Nonetheless, Unity continues to boost its competitive advantage as it benefits from the massive growth in the metaverse. This could help it justify its valuation and bring investors back to the stock over time.
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Digital Realty Trust: A picks-and-shovels play for the metaverse
Brian Withers (Digital Realty Trust): You might think it odd that I've chosen a data center REIT as a metaverse stock, but hang with me. Digital Realty is a “picks–and-shovels” play for the metaverse gold rush. A “picks-and-shovels” investment refers to the fact that all but a few of the miners during the California gold rush came up empty. But those vendors who sold tools to these miners made money hand over fist. Rather than betting on which company might “win” in the race to build the metaverse, this data center real estate specialist will win no matter what or how the metaverse comes about.
Digital Realty is a gem for those tech investors who are looking to diversify their portfolio into more conservative dividend plays but can't give up their tech stock habit. (I'll include myself in that group.) The company builds and maintains data centers all over the world and has over 280 data centers in 50 metropolitan areas on six continents. A recent $3.5 billion acquisition of Teraco, the leading data center provider in Africa, adds to this total.
The company gets its revenue from monthly rental fees, utility reimbursements, and fees from interconnection services between its data centers. Revenue topped $1.1 billion in the most recent quarter, an 11% year-over-year gain. Funds from operations, a key metric for REIT, grew a solid 33% to $447 million. The company signed on 140 new customers for the quarter, contributing to its $119 million in new annual bookings, a growth of 34% over the last Q3.
| Metric | Q3 FY20 | Q3 FY21 | YOY Change |
|---|---|---|---|
| Revenue | $1.0 billion | $1.1 billion | 11% |
| Funds from operations | $336 million | $447 million | 33% |
| Signed total bookings | $89 million | $119 million | 34% |
The company is riding the tailwind of cloud computing but could benefit from additional cloud services creating the metaverse. As virtual worlds and augmented reality become more commonplace, the need for data center space will continue to grow even as individual servers get more powerful.
The company is a dividend lover's dream stock. Since 2005, the company has raised its dividend from $1.00 to $4.64 for 2021, a 10% compound annual growth rate over the period.
Over the past five years, the total return for shareholders has been 84%. Not too shabby, but it has trailed the S&P500 over that time. With the continued growth of cloud computing, the metaverse, and the massive proliferation of data, this company should provide investors with a solid return over the coming decade with a host of dividends to boot. With the stock pulling back a bit to start the year, I would not hesitate to add a few shares of this gem to my portfolio.
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