Metaverse mania is sweeping the land. OK, that might be something of a stretch. But it’s definitely true that investors’ interest in the metaverse has soared in recent months.
You can probably thank Mark Zuckerberg. The CEO of Meta Platforms (NASDAQ:FB), formerly known as Facebook, sparked imaginations by laying out his vision for a virtual world of the future in October.
While Meta is the most visible player right now in the race to build the metaverse, there are plenty of other companies that stand to win as well. One, in particular, could have especially great prospects. Here’s an unstoppable metaverse stock that could double in 2022.
Image source: Getty Images.
Picks and shovels for the metaverse gold rush
I think comparing what’s coming with the metaverse to the gold rush days of the 19th century is appropriate. And it was said back then that the ones making the most money were those who provided picks and shovels to the gold miners rather than the miners themselves.
Unity Software (NYSE:U) arguably deserves to be seen as the preeminent “picks-and-shovels” provider for the metaverse gold rush. There are other companies developing tools to build the metaverse, but none boast the credentials that Unity does.
CEO John Riccitiello said in the company’s third-quarter conference call that Unity seeks to have between 60% and 80% of metaverse content built using Unity’s software. Is that goal realistic? I think so.
As of the end of 2020, around 71% of the top 1,000 mobile games were created with Unity’s platform. Many of these same developers are likely to hop aboard the metaverse bandwagon. I suspect most of them will stick with Unity.
The company’s acquisition of Weta Digital should make Unity even more attractive to metaverse developers. Weta’s technology has been used to create stunning visual effects for blockbuster movies including Avatar and The Lord of the Rings as well as popular TV series such as Game of Thrones. Unity plans to empower artists and creators to use these tools for building metaverse content.
What it would take to double
It’s going to take several years to get the metaverse anywhere close to fulfilling the ambitious vision that people like Zuckerberg have. But what would it take for Unity stock to double in 2022?
A booming economy and stock market would certainly help. Investors tend to shun growth stocks such as Unity when they’re worried. When times are good, though, the so-called “risk-on” mentality often serves as a tailwind for these stocks.
Unity could make a lot of headway to doubling simply by regaining its peak level set in mid-November. The stock would need to jump nearly 44% to get back to its high mark — almost halfway to the goal.
The Weta Digital acquisition could also play a key role in Unity’s performance in the new year. Riccitiello thinks that Weta will expand Unity’s total addressable market by more than $10 billion annually. Capturing even a relatively small portion of that market in 2022 would almost certainly drive the stock significantly higher.
In some ways, Unity’s ability to double depends on other companies. For example, if Meta and/or smaller developers unveil metaverse content that dazzles users, it could serve as a catalyst for Unity. On a similar note, progress in building devices such as haptic gloves that can be used in the metaverse could also boost investors’ interest in Unity.
No slam dunk
To be sure, it’s not a slam dunk that Unity stock will double over the next 12 months. Wall Street doesn’t think it will happen. The consensus price target represents an upside potential of only 19%. That’s not bad, but it’s a far cry from a 100% gain.
But even if Unity doesn’t double in 2022, I predict the stock will do so within the next three or so years. The metaverse truly presents a huge potential market for the company. I expect Unity will take full advantage of that opportunity.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.