The boom has subsided? Is the “Metaverse” the future or a bubble?

The story is well told, but the market is more concerned about how the so-called “Metaverse” will materialize into performance

On May 10, U.S. time, Roblox and Unity, two “Metaverse” concept stocks, announced their first-quarter results after the U.S. stock market closed. In terms of after-hours performance, Unity plummeted by nearly 30%, and Roblox fell by 4.44%. According to the high point, it has fallen by about 80%. Even the stock price of Meta, the leading company of the “Metaverse”, is close to halving. Has the “Metaverse” ebb? This article will analyze the financial reports of Roblox, Unity and Meta.

1. A number of Roblox data were lower than expected, and the profit model was questioned

The boom has subsided? Is the "Metaverse" the future or a bubble?

Quote source: Huasheng Securities

According to the financial report, Roblox’s first-quarter sales increased by 39% to $530 million, which was less than the market’s expected $646 million. The company reported its net loss widened to $160 million. Roblox last closed at $23.19, down 82.79% since its high of $141.6.

Roblox’s core users are Generation Z, and about 70% of its daily active users are between the ages of 5 and 24. Therefore, the question that many investors are asking is: How does Roblox make high profits from young users?

The answer given by Roblox is to expand its influence and continue to attract new users by partnering with well-known brands. Roblox previously launched Nikeland with Nike. The purpose is to attract a new generation of young users, with built-in sports-themed mini-games. Nike digital virtual shoes, apparel and accessories can be purchased in Nikeland. In the past period of time, Roblox has cooperated with Sony Music, Warner Music, National Football League and so on.

During the outbreak, Roblox’s growth rate was surprising, but on the other hand, after the travel restrictions were generally lifted in Europe and the United States, it was inevitable that users’ play time would drop significantly. In a letter to shareholders, Roblox also confirmed this: Compared to Q1 2021, daily active users spend less time on Roblox than before, and the company’s revenue is highly correlated with the time users spend related.

Judging from the financial report data of the past 5 quarters, Roblox’s performance growth rate has been declining, both in revenue and DAU; even total revenue (including revenue, deferred revenue and other adjustments) has also experienced negative growth.

The boom has subsided? Is the "Metaverse" the future or a bubble?

Source: Roblox Financial Report

2. The annual performance guidance is “thunder”, and Unity’s growth rate has slowed down significantly

The boom has subsided? Is the "Metaverse" the future or a bubble?

Quote source: Huasheng Securities

According to the financial report data, Unity’s revenue in the first quarter of 2022 was US$320 million, a year-on-year increase of 36%; a net loss of US$25.432 million. The results were basically in line with analysts’ expectations. In terms of Unity’s share price performance, the latest closing price has fallen by 76% from the high point.

However, Unity’s second-quarter and full-year 2022 sales guidance disappointed the market. The company forecast a sharp slowdown in growth in the second quarter, with sales expected to be between $290 million and $295 million, compared with analysts’ forecast of $359.65 million. The company’s performance forecast means that revenue in the second quarter will only grow by 6% year-on-year, which is significantly lower than the 36% growth rate in the first quarter.

Meanwhile, the company expects full-year 2022 sales to be between $1.35 billion and $1.425 billion (with full-year revenue up 22% to 28% year over year), below analysts’ forecast of $1.49 billion. On a non-GAAP basis, Unity expects to report a loss of $60 million to $75 million for the full year.

As of press time today (May 11), Unity fell 27% before the market, indicating that the market is extremely optimistic about its future.

The boom has subsided? Is the "Metaverse" the future or a bubble?

Source: Newzoo

According to statistics from market research firm Newzoo, the global game market will generate US$180.3 billion in 2021, an increase of about US$2.25 billion, a year-on-year increase of 1.4%, and the proportion of mobile games will reach 52%, an increase of US$6.34 billion, a year-on-year increase of 7.3%. From the data point of view, mobile games are moving forward in the “carrying” game market.

61% of mobile games are developed using Unity’s game engine, and among the top 1000 mobile games in the world in 2021, more than 70% are developed using Unity.

Under such gorgeous data, why did the market’s expectations for Unity drop again and again?

Unity’s advantage lies in the development of cross-platform games. Compared with the mainframe and PC side of its main competitor, Unreal, Unity has undoubtedly perfectly captured the boom in the mobile game market. But the game developer told the editor: In the same work efficiency and time, the picture effect brought by UE4 is far better than Unity.If you want to develop high-quality games on Unity, you need strong technical support. A typical example is Mihayou, the company of “Yuan Shen”, which has been popular all over the world in recent years.

As the “shovel seller” of the Metaverse, Unity’s dominance in the field of VR and AR software development is unquestionable, but this performance guidance surprised investors: Is this part of the profit impossible to realize?

3. Metaverse business still has a long way to go

On April 28, Facebook parent company Meta released its first-quarter earnings report. According to the financial report, Meta’s revenue in the first quarter was 27.908 billion US dollars, a year-on-year increase of 7%, slightly lower than market expectations of 28.2 billion US dollars; the company’s profit recorded 7.465 billion US dollars, which was higher than market estimates of 7.1 billion US dollars. The market is more concerned that Meta’s DAU has resumed its growth momentum: the average daily active users of Facebook’s main platform was 1.96 billion, up 4% year-on-year, higher than the expected 1.95 billion.

On the trading day after the results were released, Meta rose by more than 17%. As of the latest closing price, Meta has retraced 48.27% from the highest point,

The boom has subsided? Is the "Metaverse" the future or a bubble?

Quote source: Huasheng Securities

Compared with Roblox and Unity, which have “smashing performance”, the hardware entry in Meta’s hands may be the magic weapon.

In the first quarter financial report, Meta’s Reality Labs achieved revenue of 695 million, a year-on-year increase of 30%, basically in line with market expectations. After the Christmas sale in the fourth quarter of last year, the market penetration rate of the flagship product Quest 2 is also accelerating. SteamVR data shows that on the Steam platform, the market share of Quest 2 has reached 47% (39% by the end of 2021), and the overall market share is close to 60%. 

The boom has subsided? Is the "Metaverse" the future or a bubble?

Source: Internet

However, every family has a difficult scripture to read, and Meta also has its own problems.

Musk’s acquisition of Twitter is almost a certainty. According to Musk himself, the most fundamental reason for his acquisition of Twitter is to create a platform for people to express free speech, optimize the existing algorithms of social platforms, and ultimately change social media. The operating logic of the industry. That is to say, Musk believes that there are many problems with the current social software.

From Facebook’s firm transformation into a “Metaverse company”, it can also be seen that Zuckerberg believes that the future growth space in the social field is limited and a new strong growth point is urgently needed. After spending $3 billion to acquire VR headset maker Oculus in 2014, Zuckerberg explained the reason for the acquisition: “Missing the design of smartphones and their operating systems, many companies can only become vassals of Google and Apple. Only with your own hardware platform and system can you control your destiny.” This also explains to a certain extent why Zuckerberg bet on the Metaverse, he hopes to get rid of the control of Apple and other platforms over his own software, and be able to build his own rules .

However, Meta’s Metaverse business wants to make a large-scale profit and become the main source of income. It seems that it is far away now. That is to say, the valuation of the Metaverse part is more dependent on the market’s imagination. This is for the stock price of Meta. is an unstable “X” factor.

Risk and disclaimer: The above content only represents the author’s personal position and opinion, and does not represent any position of Huasheng, and Huasheng cannot confirm the authenticity, accuracy and originality of the above content.Investors should consider the risks of investment products in light of their own circumstances before making any investment decisions. When necessary, please consult a professional investment advisor. Huasheng does not provide any investment advice, nor does it make any commitments and guarantees.

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