Roblox Corporation (RBLX) listed on the bourses in March 2021, and almost doubled to $134 levels by November 2021. The pandemic — which kept people indoors worked — wonders for its userbase.
Since November, the stock has lost value. In 2022, the stock is already down 28% year-to-date. However, we are bullish on the stock since it’s a play on the metaverse and is a good platform for users to develop and launch their new metaverse experiences.
Roblox is a California-based video game company that develops and operates an online video gaming platform and allows users to develop games or simply play games.
Its “Roblox Client” allows users to explore 3D digital worlds, while its “Roblox Studio” provides users with the necessary toolsets to build, publish, and operate 3D experiences and other content. It also offers a “Roblox Cloud” facility that renders services and infrastructure to facilitate the platform.
Roblox maintains a very strong long-term outlook and has a clear vision of what it is trying to build in the near future. Therefore, the market considers it as one of the major players of the emerging metaverse.
When Facebook renamed itself Meta, Roblox’s stock received a boost. Nowadays as people are spending more time playing games, Roblox will be able to continue attracting more investors owing to the unique gaming experience it provides.
Growing Revenues
Roblox’s revenue model is quite unique as it earns its revenue mainly by selling its in-game currency called Robux. As more and more people start dealing in Robux on its platform, the company’s revenue income will also start getting better every quarter.
Roblox was able to record three consecutive quarters of more than 100% revenue growth in 2021. In the third quarter of 2021, the company’s revenue increased by 102% year-over-year, while in the previous two quarters the revenue growths were 127% and 140%, respectively.
Despite increasing revenues, Roblox’s losses kept on widening. This was because the company had to pay out high developer exchange fees to the creators who sold off their Robux for real-world currencies.
Besides, bigger stock-based compensation expenses also had to be paid off. Yet, the best part is the company has been earning a growing stream of free cash flows undeterred by its weaker bottom line.
RBLX stock earns a Moderate Buy consensus rating from TipRanks, based on eight Buys, two Holds, and one Sell assigned in the past three months.
The average Roblox price target is $113.40, suggesting 60.3% upside potential.
Embracing the Metaverse
One of the major catalysts that is going to drive Roblox Corporation’s growth in the coming days is the fact that the company intends to provide a complete metaverse experience to its users.
The company’s vice president of brand partnerships opined Roblox is ushering in this new category of human co-experience to let people come and connect with one another, and have shared virtual experiences.
Roblox has already started working towards it. Last year, it launched the Vans World intending to provide an interactive skateboarding world experience, and a metaverse playground to its users.
Soon after, Nike (NKE) also launched an immersive world experience called Nikeland on the Roblox Platform, letting the users enter into their digital showrooms and dress up their avatars in Nike Gears or pursue its other latest products. Recently, reality star Paris Hilton has also launched her metaverse business “Paris World” on Roblox.
The Pandemic Effect
The gaming industry is one of the fastest-growing industries worldwide. Its market was valued at $173.7 billion in 2021, and is expected to reach $314.4 billion by 2027.
The pandemic has provided the gaming industry with a much-needed boost. As people were locked up in their houses due to countrywide lockdowns both children as well as adults resorted to playing games.
Since the pandemic has hit, the daily number of users on the Roblox platform also increased exponentially. As per its last quarter report ending September 30, 2021, Roblox reported more than 11.2 billion engagement hours and the daily active users of its platform increased to 47.3 million against the 43.2 million reported a quarter ago. Also, the year-over-year growth in those last two quarters were 29% and 31%, respectively.
This growth cycle can continue for Roblox even in the coming years as it is always looking out for ways to create new experiences for its users. Moreover, the acceleration in its daily user base indicates the company is getting increased acceptance amongst the masses.
Roblox is one of the top metaverse stocks to watch now. The company can potentially add up new income sources like subscription, advertising, or e-commerce to earn more profits in the near future.
Though it will still need a lot more time to achieve the vision it has for itself, looking at the company’s current strategic approaches it seems it has already started moving that way.
Issues like the recent virtual groping incident on Facebook Horizon Worlds might come up again and slow down its growth pace, but Roblox’s tenaciousness will ensure its success.
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