2022 will be the year of the metaverse. And much of that excitement will be driven by a dramatic expansion of the public’s understanding of what non-fungible tokens (NFTs) are and how they can be utilized.
If you follow the NFT market, you’ve already seen it rocket to start the year. Many projects are up 20%, 50%, or 200%+ in the first few trading days of the year.
I’ve discussed NFTs before. An NFT is a one-of-a-kind digital asset. If you purchase an NFT, it belongs to you and only you.
For example, if you have a bitcoin and I have bitcoin, we could exchange them. We wouldn’t gain or lose anything. A bitcoin is fungible.
However, we could not exchange birth certificates or driver’s licenses. Each document is unique to us — They are non-fungible.
Here’s a few other tidbits I’ve written on the subject:
As you probably already know, the most popular NFTs today include artwork, profile picture (PFP) projects, and music. As I’ve said before, believing that the utility of NFTs begins and ends with artwork and music is missing the forest for the trees, but let’s get back to the metaverse.
If one were to listen to Mark Zuckerberg, you know the guy who renamed Facebook to Meta Platforms (FB) , he described it this way:
“It’s a virtual environment. We can be present with people in digital spaces. And you can kind of think about this as an embodied Internet that you’re inside of rather than just looking at. And we believe that this is going to be the successor to the mobile Internet. You’re going to be able to access the metaverse from all different devices and levels of fidelity, from apps on phones and PCs to immersive virtual and augmented reality devices.
You can build a hangout, play games with friends, work, create, and more within the metaverse. You’re going to be able to do everything that you can on the Internet today, as well as some things that don’t make sense on the Internet today, like dancing. The defining quality of the metaverse is presence, which is this feeling that you’re there with another person or in another place. Creation, avatars, and digital objects will be central to how we express ourselves, and this will lead to entirely new experiences and economic opportunities. I think that, overall, this is one of the most exciting projects that we’re going to get to work on in our lifetime. But it could take a lot of work, and no one company will be able to build this all by themselves. Part of what I’ve learned over the last five years is that we can’t just focus on building great experiences. We also need to make sure that we’re helping develop an ecosystem so millions of other people can participate in the upside and opportunity of what we’re all creating. They’re going to need new protocols and standards, new devices, new chips, new software from rendering engines to payment systems, and everything in between.”
Simply put, if Web 1.0 was desktop, the introduction of the browser and banner ads, and Web 2.0 was mobile, streaming media, and social, Web 3.0 is the decentralized web, the creator economy, and the metaverse.
And everyone wants in. We already know Zuckerberg is in but so are the folks at Microsoft (MSFT) , Roblox (RBLX) , Epic (the owners of Fortnight), Alphabet (GOOGL) , Nike (NKE) , Adidas, Disney (DIS) , or any of a dozen other startups dedicating every hour of every day to developing a metaverse.
From luxury retailers and virtual real estate speculators to social media companies and technology companies focused on the enterprise — everyone wants a piece of the metaverse!
And just like the companies that profited from Web 1.0 and Web 2.0, there won’t be just one winner during the age of the metaverse.
However, since revenues generated from the buildout of the metaverse will only represent a small part of net sales generated by companies such as Meta, Google, and Microsoft for a considerable time, it makes more sense, at least early on, to focus on the companies whose fortunes are directly tied to the buildout and adoption of Web 3.0.
And that’s why I believe Unity Software (U) could be a big winner in 2022.
Despite its roughly $40 billion market cap, Unity Software isn’t very well known unless you’re deep in the gaming industry or already familiar with the buildout of the metaverse.
Unity is the leading platform for creating and operating interactive, real-time 3D (RT3D) content. Its platform is also equipped with software solutions to develop and monetize interactive, real-time 2D and 3D content for mobile phones, tablets, PCs, consoles, and augmented and virtual reality devices (AR/VR).
Simply put, Unity is a leading player in the architecture and technology necessary to create the metaverse — AR, VR, and RT3D.
In fact, Unity’s CEO said that more than 50% of everything that is RT3D that is in the world — the metaverse thesis — is built in Unity. Even if he’s half right, that’s significant. Unity provides the underlying toolset for creating the metaverse and services necessary for companies to maximize their presence within the metaverse.
Best yet, because Unity is not a direct competitor of metaverse companies like Roblox, Epic, or Minecraft, it can appeal to virtually everyone creating and monetizing within Web 3.0.
We aren’t even in the first inning of the metaverse. We’re still trying to get to our seats with a beer in one hand and a hot dog in the other. So much for eating healthy in the new year. And if your goal is to capture as much of the potential upside as possible, this is precisely when you want to begin placing your bets.
Unity is not building a metaverse destination. This company is selling the picks, shovels, and ongoing toolset that companies, creators, and entrepreneurs need to participate and monetize within a public or private sector.
The biggest drawback to Unity is price. It ain’t cheap; however, the company generated revenue growth of between 42% and 68% each of the past five quarters. And as you know, when it comes to high-growth software companies, explosive revenue growth is a must.
Another huge positive for Unity is its dollar-based net expansion rate. As of Sept. 30, 2021, the company’s dollar-based net expansion rate was 142%! Considering that anything over 105% to 110% is impressive, 142% is extremely strong.
The bottom line is Unity Software is a star in the emerging Web 3.0 industry, and as you’d expect, it’s priced as such. As the metaverse begins to explode, I believe Unity’s price will follow, assuming it doesn’t get taken out before then.
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