Video game platform Roblox (RBLX) made a splash when it went public earlier this year. It’s had its ups and downs since. However, it’s also made a steady advance up from its original IPO price, which is noteworthy in and of itself.
The company that built a $45 billion market cap on its first day of trading may be building toward a surprising future. Regardless of its ultimate destination, I’m bullish on Roblox. The latest developments could be a big deal. (See Analysts’ Top Stocks on TipRanks)
Roblox’s year in share prices so far has, on average, been on an upward trajectory. The company lost some ground in March, but April’s arrival sent it on an upward leg.
Early May, however, saw much of that ground lost. A major spike finished out Roblox’s May, and June saw another dip with a smaller recovery. The company then spent the rest of the summer, and most of the fall, bouncing around the $80 mark per share. That is, until November when a massive spike kicked in that sent the company from around $77 per share to nearly $110 in one day.
Another spike followed, this one taking just over a week to fully realize and only pushing the shares to around $135. A jagged series of dips and recoveries followed, bringing us to the present day, where the stock stands at around $95 per share.
The latest news, meanwhile, poses a whole new possibility for Roblox. Recently, socialite and media mainstay Paris Hilton announced that Roblox was now home to Paris World.
Paris World is, essentially, a section of Roblox devoted to all things Paris, including “…fun, possibility, and of course, #sliving”. For those not familiar, “sliving” is Hilton’s portmanteau of “slaying” and “living my best life.” Paris World will feature tourable replicas of Hilton’s estate in Beverly Hills, private jets, yachts, and more.
This isn’t really a first, either; the MetaSpace Real Estate Investment Trust has recently started trading on PancakeSwap. MREIT tokens currently trade for about $0.11.
The MetaSpace Real Estate Investment Trust functions like most other REITs, only that it focuses on virtual reality real estate. In fact, some of these locations, like Decentraland and The Sandbox, are now selling for sufficient amounts to require mortgages to buy them.
Surreal Estate, or, Shades of “Ready Player One”
The concept of buying real estate in a video game with actual money isn’t really that new. Games have been offering such concepts for a while now. Remember “Second Life”? “Second Life” is actually still around and has been for some time now. Its developer, Linden Labs, recently offered up a look at what’s likely to come in 2022.
For a while, “Diablo” players could openly sell equipment on eBay. The trend seems to be making a comeback with the recent release of “Diablo 2 Resurrected”. Perhaps the biggest example is Club Neverdie, a property in “Entropia” that sold for $635,000 back in 2010.
Seeing Roblox get involved in this is scarcely a surprise. The precedent has long since been established. Since Roblox is basically a combination of developer and platform, the idea of Roblox selling chunks of its platform directly to the user makes sense.
This opens up a lot of new potential operations; Roblox can sell advertising space within the areas it controls. It can even go and sell the areas themselves. Since the areas in question represent little more than ones and zeroes on a server, the sales are mostly profit. Comparisons to “Ready Player One” here are not mislaid; it’s roughly the same thing, just with much worse graphics.
The company’s fundamentals are reasonably sound, too. Back in November, the company reported 32.6 million daily active users at the end of 2020 alone. The company is trading below not only its highest targets but also below its average target. That leaves the potential for outright growth in play. The company’s revenue has been climbing as well. That bodes well for future development.
Wall Street’s Take
Turning to Wall Street, Roblox has a Moderate Buy consensus rating. That’s based on eight Buys, two Holds, and one Sell assigned in the past three months. The average Roblox price target of $116.90 implies 22.5% upside potential.
Analyst price targets range from a low of $70 per share to a high of $150 per share.
Concluding Views
Virtual real estate may sound like a bad investment. It may sound like a perfect application of the Greater Fool theory. Simply put, however, it’s selling, and it’s selling pretty rapidly.
One day, we might well choose to opt out of the real world and go wholly virtual instead. Or at least mostly virtual, pausing only for food and other biological necessities. When you consider the sheer amount of time that we spend online as it is, we’re already halfway there.
Roblox, however, is leading the way when it comes to virtual real estate. Meta (FB) is certainly getting involved here. There are a host of others who have already been in the space.
Buying in on Roblox or MREITs may seem like a bad idea now. It may not be so bad, however, later. I’m bullish on Roblox, not so much for its real-world applications but for its virtual ones. Our lives are increasingly online. Thus, a bit of investment in that future now may pay off big down the road.
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Disclosure: At the time of publication, Steve Anderson did not have a position in any of the securities mentioned in this article.
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