Avoid These 3 Overvalued Metaverse Stocks in December

The term ‘metaverse’ has gained a lot of popularity recently after social media giant Facebook changed its name to Meta Platforms Inc. (FB), and Microsoft Corp. (MSFT) has staked its claim over this newest innovative hyper-real alternative world, based on augmented reality.

Investors have increased transactions in cryptocurrencies to buy metaverse ‘real-estate.’ However, this land buying is still speculative, and it is unclear whether this boom is actually a bubble. The metaverse is still on the build, and the question of privacy invasion has been raised, with low trust on FB, the metaverse forerunner.

Therefore, it might be best to avoid overvalued metaverse stocks of Roblox Corporation (RBLX), Unity Software Inc. (U), and Matterport, Inc. (MTTR) in December.

Roblox Corporation (RBLX)

RBLX is an online entertainment platform developer and operator that offers Roblox Client, an application enabling users to explore the 3D digital world, and Roblox Studio, a toolset that allows developers to create and publish content. The company went public by listing its Class A common stock on the New York Stock Exchange on March 10, 2021.

On October 27, RBLX announced the pricing of the $1.0 billion aggregate principal amount of its 3.875% Senior Notes due 2030. The company expects to use the proceeds for general corporate purposes.

In terms of its forward Price/Book, RBLX is currently trading at 130.00x, 4,896% above the industry average of 2.60x. Its forward Price/Cash Flow multiple of 170.41 is 1,621.8% higher than the industry average of 9.90.

For the fiscal third quarter ended September 30, RBLX’s total costs and expenses increased 93.4% year-over-year to $586.78 million. Loss from operations and net loss attributable to common stockholders rose 50.3% and 52.2% from the same period last year to $77.45 million and $74 million, respectively.

The consensus EPS estimate of a negative $0.14 for the current quarter (ending December 2021) indicates a 27.3% year-over-year decrease. Moreover, RBLX has missed consensus EPS estimates in three out of the trailing four quarters.

The stock has declined 8.7% over the past five days and 10% intra-day to close yesterday’s trading session at $113.41.

RBLX’s POWR Ratings reflect this bleak outlook. The stock has an overall rating of D, which equates to Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

RBLX has a Stability grade of F and a Value and Sentiment grade of D. In the 23-stock Entertainment – Toys & Video Games industry, RBLX is ranked #19. Click here to see the additional POWR Ratings for RBLX (Growth, Momentum, and Quality).

Unity Software Inc. (U)

U is a real-time 3D development platform that provides its customers with software solutions for creating and monetizing real-time 2D and 3D content, made for phones, tablets, PCs, consoles, and virtual reality devices.

On December 1, the company announced that it had completed the acquisition of the visual-effects company, Weta Digital’s tools, pipelines, and engineering expertise, aiming to empower game developers. Artists and creators. On the other hand, the transaction resulted in $1.63 billion of cash and stock outflow.

U’s forward Price/Sales multiple of 45.20 is trading 1,025.9% higher than the industry average of 4.01. In terms of its forward EV/Sales, it is currently trading at 43.59x, 945.2% above the industry average of $4.17.

U’s non-GAAP loss from operations increased 43.1% year-over-year to $12.08 million in the third fiscal quarter ended September 30. Non-GAAP net loss rose 14.3% from the prior-year quarter to $14.81 million. The company’s cash and cash equivalent balance for the period came in at $766.25 million, down 57% from the same period last year.

Analysts expect U’s EPS to remain negative at least until next year (fiscal 2022). U’s shares have declined 1.2% year-to-date to close yesterday’s trading session at $151.68. Over the past five days, it has declined 16.6%.

It’s no surprise that U has an overall D rating, which translates to Sell in our POWR Rating system. The stock also has a D grade for Value and Stability. U is ranked #18 in the Entertainment – Toys & Video Games industry.

To see the additional POWR Ratings for Growth, Momentum, Sentiment, and Quality for U, click here.

Matterport, Inc. (MTTR)

MTTR operates as a spatial data company focused on the digitization and indexing of the built world. The company’s offerings include Matterport digital twins, Matterport Capture, Matterport Workshop application, Matterport Showcase application, and Matterport VR. It went public after a business combination with special purpose acquisition company (SPAC) Gores Holdings VI on July 23, 2021.

On December 1, MTTR announced the availability of its platform on Amazon.com, Inc. (AMZN), Amazon Web Services (AWS) Marketplace, enabling AWS customers to access MTTR’s digital twin technology. However, it might take some time before substantial gains can materialize from this collaboration.

In terms of its forward Price/Sales, MTTR is currently trading at 74.94x, 1,766.8% above the industry average of 4.01x. Its forward EV/Sales multiple of 73.53 is 1,662.9% higher than the industry average of 4.17.

For the fiscal third quarter ended September 30, MTTR’s total operating expenses increased 324.1% year-over-year to $58.54 million. Non-GAAP net income and non-GAAP net income per share attributable to common stockholders came in at a negative $14.03 million and a negative $0.06, respectively, registering a decline of 1,013.5% and 700% from the prior-year quarter.

Street expects EPS to remain negative until next year (fiscal 2022). The stock has declined 4.5% intra-day to close yesterday’s trading session at $31.18.

MTTR’s poor prospects are reflected in its POWR Ratings. The stock has an overall D rating, which equates to Sell in our proprietary rating system. The stock has a Stability grade of D. In the 169-stock Software – Application industry, MTTR is ranked #118. The industry is rated F.

In addition to the POWR Rating grades we’ve stated above, one can see MTTR ratings for Growth, Value, Momentum, Sentiment, and Quality here.

RBLX shares were trading at $118.02 per share on Thursday afternoon, up $4.61 (+4.06%). Year-to-date, RBLX has gained 69.81%, versus a 23.93% rise in the benchmark S&P 500 index during the same period.

Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.

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