The term “metaverse” has gained traction worldwide lately, especially after Facebook Inc. was renamed Meta Platforms, Inc. (FB). The metaverse is a virtual universe, a “mirror world” powered by augmented and virtual reality headsets that enable users to engage with content, interact with other users, and experience almost anything in a virtual realm.

The metaverse has been gaining traction with the growing popularity, scope, and availability of cryptocurrencies and blockchains. According to ReportsandData, the global metaverse market is expected to reach $872.35 billion, growing at a 44.1% CAGR.

However, given the immense competition in the space, not all stocks are well poised to capitalize on the growing industry tailwinds. Fundamentally weak metaverse stocks Roblox Corporation (RBLX - Get Rating) and Matterport, Inc. (MTTR - Get Rating) have declined by more than 30% in price over the past month. Furthermore, these stocks look overpriced at their current price level. So, we think they are best avoided now.

Roblox Corporation (RBLX - Get Rating)

RBLX in San Mateo, Calif., develops and operates an online entertainment platform. It offers Roblox Client, an application that allows users to explore 3D digital worlds, and Roblox Studio, a toolset that enables developers and creators to build, publish and operate 3D experiences and other content.

On Jan. 7, 2022, RBLX announced that its Chinese version LuoBuLeSi, published and operated by Tencent, on Dec. 8, 2021 closed down its server five months after launching it. For its fiscal third quarter, ended Sept. 30, 2021, RBLX’s cost of revenue increased 97.5% year-over-year to $130.01 million. The company’s sales and marketing expenses increased 52.4% year-over-year to $19.59 million. Also, its adjusted EBITDA declined  15.7% year-over-year to $135.67 million.

In terms of forward EV/S and EV/EBITDA, RBLX’s respective 12.91x and 51.70x are higher than the 2.38x and 9.21x industry averages. Furthermore, its 64.38x forward P/B is 2,456.8% higher than the 2.52x industry average. Analysts expect RBLX’s EPS to remain negative this year and next year. It failed to surpass the Street’s EPS estimates in three of the trailing four quarters. Over the past month, the stock has declined 33% in price to close the last trading session at $63.74.

RBLX’s weak fundamentals are reflected in its POWR Ratings. The stock has an overall D rating, which equates to a Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

It has an F grade for Stability and a D grade for Growth, Value, Momentum, and Sentiment. It is ranked #19 of 22 stocks in the Entertainment – Toys & Video Games industry. Click here to see the rating of RBLX for Quality.

Matterport, Inc. (MTTR - Get Rating)

MTTR is a spatial data company that is headquartered in Sunnyvale, Calif. The company’s 3D data platform enables users to create a digital twin for a space, which can be used for design, building, operating, promoting, and understanding space. It offers an on-demand solution for customers who need to capture multiple properties. It serves industries that include real estate, 3D photography, retail, travel and hospitality, homeowners, insurance and restoration, and others.

MTTR’s non-GAAP net loss for its fiscal third quarter, ended Sept. 30, 2021, came in at $14.03 million, versus $1.53 million in net income in the year-ago period. The company’s non-GAAP loss per share was $0.06, compared to earnings per share of $0.01 in the year-ago period. Also, its operating expenses increased 324% year-over-year to $58.53 million.

In terms of forward EV/S and P/S, MTTR’s respective 17.14x and 20.11x are higher than the 3.75x and 3.69x industry averages. Furthermore, its 7.69x forward P/B is 44% higher than the 5.34x industry average. MTTR’s EPS is expected to remain negative for this year and next year. Over the past month, the stock has declined 54% to close the last trading session at $8.38.

MTTR’s POWR Ratings reflect these bleak prospects. The stock has an overall D rating, which equates to a Sell. MTTR has an F grade for Stability and a D grade for Momentum and Sentiment. Within the F-rated Software – Application industry, it is ranked #129 of 170 stocks. To see the other ratings of MTTR for Growth, Value, and Quality, click here.

Click here to check out our Software Industry Report for 2022

RBLX shares were trading at $63.14 per share on Monday morning, down $0.60 (-0.94%). Year-to-date, RBLX has declined -38.79%, versus a -5.77% rise in the benchmark S&P 500 index during the same period.

About the Author: Dipanjan Banchur

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets. More...

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