Stock Analysis & Ideas

U versus CRWD: Which Metaverse Stock is More Attractive?

Story Highlights

Many investors want a piece of the metaverse but don’t know where to look. These two metaverse stocks approach the market from two different angles. Although both are losing money, one is further on the path to profitability.

The metaverse captured investors’ imagination toward the end of 2021 when Mark Zuckerberg announced that the company was changing its name to Meta Platforms (NASDAQ:META) due to an increased focus on the metaverse. In this piece, we used TipRanks’ Comparison Tool to evaluate two metaverse stocks — Unity Software (NYSE:U) and CrowdStrike Holdings (NASDAQ:CRWD) — and explain why CRWD is more attractive.

Unity Software approaches the metaverse from the standpoint of video games, while CrowdStrike Holdings is a cybersecurity firm.

Investing in the Metaverse

Investors looking for ways to invest in the metaverse may be having a difficult time doing so without diving into the ultra-risky non-fungible token (NFT) market. It’s important to realize that there are no real pure-play metaverse stocks. All the companies with exposure to the metaverse also have exposure to other markets. Thus, it’s a good idea for investors to consider those other exposures when selecting stocks for the purpose of getting metaverse exposure.

Of course, the metaverse is in such an early stage that it would be inadvisable to invest in a pure metaverse play. It’s too early to know whether this latest iteration of the internet will stick.

Unity Software

Unity Software management has been talking up their involvement in the metaverse for months. The firm launched its regular block column called the “Metaverse Minute” in January. Unity’s software engine powers numerous games and has clear applications in the metaverse. However, a closer look at the company’s financials suggests a bearish view may be appropriate.

First, Unity Software has been unprofitable for years despite being profitable in its early stages. In fact, the company fails to turn a profit even though its game engine powers half of the games released on PC, consoles, and mobile devices.

Given that Wall Street has virtually abandoned money-losing companies over the last year or so, it’s no wonder that Unity Software shares have plummeted since the initial public offering in 2020. This fact alone should make investors question whether it’s a good idea to invest in Unity anytime soon despite the metaverse connection.

Unity also has a subscription-based model, which makes it look attractive to investors—until they see how much money it loses. The company’s CEO said they expect to be profitable in the fourth quarter, although they expect slower growth until then.

Based on all these factors, investors might want to reevaluate Unity Software next year to see if it is profitable, but for now, its negative P/E and continuing losses leave much to be desired.

What is the Price Target for U stock?

Unity Software has a Moderate Buy consensus rating based on nine Buys, four Holds, and one Sell assigned in the last three months. At $58.91, the average Unity Software price target implies upside potential of 52.3%.

CrowdStrike Holdings

While CrowdStrike is more of a cybersecurity firm than a metaverse play, there are reasons to include it among metaverse stocks. It is a cloud-centric cybersecurity provider, which is why it’s an excellent option for companies building the metaverse. As a result, a bullish view seems appropriate, especially when looking at the company’s financials.

CrowdStrike’s software secures access points for networks. The company also offers zero-trust protection for devices and data following its acquisition of SecureCircle. CrowdStrike is more attractive than legacy cybersecurity providers because its technology was designed specifically for the cloud.

When the pandemic hit, the work-from-home trend took off, further cementing the case for CrowdStrike. Although the company doesn’t have an offering specifically for the metaverse, its focus on securing the cloud presents attractive use cases for the metaverse. In fact, some of its customers include video game designers that are already building content for the metaverse.

Even without the opportunities offered by the metaverse, CrowdStrike looks attractive. Unlike Unity Software, the company is profitable—very profitable with double-digit margins. Like Unity, CrowdStrike enjoys the benefit of recurring revenues. The company reported a gross margin of about 76% on a GAAP basis for its subscription revenue and 78% on a non-GAAP basis for the second quarter of Fiscal Year 2023.

Unfortunately, CrowdStrike is unprofitable on a GAAP basis, but its non-GAAP profitability signals an attractive future. Generally, analysts expect the company to become profitable in 2025. Growth investors, particularly, may find this cybersecurity firm attractive because it has been growing rapidly.

CrowdStrike reported a 58% year-over-year increase in total revenue and a 59% increase in annual recurring revenue, which rose to $2.14 billion as of the end of July. The company did generate cash during the second quarter, recording $209.9 million in net cash from operations compared to $108.5 million in the year-ago quarter.

CrowdStrike’s non-GAAP P/E has declined significantly over the last year, peaking at around 481 times in November 2021 and falling to about 113.6 times. Thus, there could be an opportunity in this cybersecurity firm’s stock.

What is the Price Target for CRWD stock?

CrowdStrike Holdings has a Strong Buy consensus rating based on 18 Buys, one Hold, and zero Sells assigned over the last three months. At $232.16, the average CrowdStrike Holdings price target implies upside potential of 35.7%.

Conclusion: Bearish on U, Bullish on CRWD

While both Unity Software and CrowdStrike Holdings are losing money, CrowdStrike is further along on the path to profitability, given that it is profitable on a non-GAAP basis. As a result, a bearish view of Unity and a bullish view of CrowdStrike might be appropriate.

Growth investors have fallen in love with both firms, but one has to wonder how Unity can become profitable when their game engine is already used in 50% of games. On the other hand, CrowdStrike appears to have a more transparent path to profitability. However, it’s important to emphasize that CrowdStrike may be more of a long-term play because it should take off once it becomes profitable on a GAAP basis as well.

Disclosure

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