Since Facebook formally changed its name to Meta (NASDAQ:META), the Metaverse has been a siren song for investors and companies alike. Billions of dollars have been dashed upon the rocks chasing metaverse profit that often failed to materialize. In such times, wise investors need to cut their losses and sell the metaverse stocks that fail to deliver.
The metaverse was promised to completely upend social lives and mores. People would interact in an online virtual or augmented reality in a way that some claimed would be indistinguishable from actual reality. And in that new reality, entire businesses and economies would spring up to service our every virtual need.
That promise held a certain allure to those of us with a science-fiction bent, but it hasn’t really come to pass. The metaverse as a replacement for real life is just as far as it was a few years ago. And augmented and virtual reality remain niche products. Because of that, the companies poised to profit off the metaverse have mostly fallen hard.
While some companies that invested in the metaverse remain strong, several underperforming metaverse stocks are still out there. These stocks may have a beautiful vision and a smart idea, but that alone won’t make a successful business. Companies that continue to invest heavily in the metaverse with little to show for it aren’t likely to rebound quickly to their all-time highs.
While some still see the metaverse as the future of work, the internet, and even life in general, it’s important to keep a clearer head when investing. So here are three of the top metaverse stocks to sell.
Roblox (NYSE:RBLX) is not only a games platform, it’s also a development environment. It allows anyone to make, share and play their own games or anyone else’s. And games aren’t all; an entire ecosystem of sharable online content has grown out of Roblox. It’s no wonder Roblox has garnered a user base of over 250 million monthly average users. And when the metaverse was hot, Roblox was a top metaverse stock. Its platform was seen as ideal because the metaverse needs content, and Roblox is a content-creating machine.
But by the numbers, Roblox doesn’t seem worth its current market cap. Their Q1 2023 earnings showed them with just $828 million in cash and cash equivalents. With a net loss of $290 million, that gives them just three quarters of cash runway.
Roblox boosters will point out that they also have $1.4 billion in short-term investments, which can increase that runway. But earnings are also going in the wrong direction. From Q1 2022 to Q1 2023, while revenue increased by $118 million, expenses increased almost as fast. Their net loss went from $162 million to $270 million.
Roblox is moving quickly in the wrong direction. Revenue growth is far outpaced by expenses growth. And that revenue growth, while impressive, hardly justifies their current valuation. In the near term, this makes Roblox one of the metaverse stocks to sell.
Snap (NYSE:SNAP) is the social media company behind Snapchat, Bitmoji, and other augmented reality apps. While their CEO Evan Spiegel may not have agreed with Meta’s vision of the metaverse, the company has still bet big on delivering AR to customers everywhere.
Snap stock skyrocketed during the COVID-19 pandemic as people stuck inside turned to AR to fill the void in their social lives. As the pandemic faded, Snap stock has taken a big hit, partly driven by lower ad revenue and a continued lack of profits. With their Q1 2023 earnings showing an operating loss of $365 million on revenue of $989 million, Snap is moving swiftly in the wrong direction.
For its part, Snap has highlighted continued growth in daily average users (DAUs). And they continue to improve their AR offerings, with Spectacles and AR mirrors to let customers see what they want to see. But if Snap is getting worse at turning users into revenue, as their earnings seem to show, those offerings may not move the needle.
The bottom line is that Snap looked like a sure bet when the pandemic made us lonely and bored. They seemed poised to lead an AR revolution to upend how we interact socially. Now that the pandemic is over, we’re realizing that we’ve mostly returned to how things used to be. And that’s not good news for a company trying to sell a revolution.
The cryptocurrency was supposed to be the currency of the metaverse, but it’s still struggling to be a currency of any kind. That puts Coinbase (NASDAQ:COIN) in a bind. This premier crypto trading platform loses money despite chasing the metaverse hype.
Coinbase isn’t a bank and isn’t just an exchange. But it’s one of the closest and most trusted versions of both those things that the crypto industry has. Coinbase makes money on trading fees, markups, and services for crypto traders and holders. When cryptocurrency was popular, those fees brought impressive revenue. As crypto’s popularity has waned, that revenue has dried up.
Coinbase’s Q1 2023 earnings demonstrate this point quite starkly. Revenue contracted by 36.8% year-over-year, from $1.16 billion to $0.74 billion. Operating losses also decreased, and Coinbase still isn’t close to making a profit, with a net loss of $79 million for the quarter.
Coinbase isn’t close to bankruptcy yet, as it still has $5 billion in cash and cash equivalents. But Coinbase’s collapse in revenue is unlikely to reverse itself unless another crypto boom happens. At this point, that seems highly unlikely in the near term.
Coinbase thought that cryptocurrencies and NFTs would be the currency and asset class of the metaverse. But that dream hasn’t materialized. And with Coinbase continuing to lose money with ever-shrinking revenue, there’s little left for investors but to make their exits.
On the date of publication, John Blankenhorn held a long position in Meta. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.