The company had a recent blockbuster IPO, but is Roblox a good investment for investors looking to bet on the gaming industry?
Roblox (NYSE: RBLX) is a virtual game space company that brings together players and developers into one interactive and broad platform. Players can choose from over 40 million games that are custom-made by the developers, who can then monetize the game using in-game purchases with Robux, the in-game currency. 350,000 developers create and run games for the platform’s 199 million monthly active users.
Roblox’s IPO was one of the most anticipated in recent years, but is it a good place to put your money, or should investors be looking elsewhere?
The bull case
Roblox has a vision for the future ‘metaverse’ where people will seamlessly get together and interact in millions of 3D virtual experiences. This virtual world represents how people learn, play, work, consume entertainment, try on and shop fashion, and interact with brands. The possibilities are endless here — Roblox can take this concept and go any direction they like with it. This metaverse ties in with Generation Z, who grew up in the tech era and happens to be a huge chunk of the platform’s target audience, giving the business more potential to grow and expand as the generation ages.
Roblox’s branding strategy is excellent. The business has begun partnering with other businesses to do just that. It currently has partnerships with DC Comics, Nike, Gucci, and NFL, and has recently partnered with Hasbro. This involves licensing its intellectual property to Hasbro to create Roblox-themed Monopoly and NERF products. This shows the sheer strength and popularity of the brand, opening up the possibility of more money-making deals of this nature in the future.
The business has been rapidly gaining traction, with revenue growing 56% from $325 million in 2018 to $508.4 million in 2019 and grew 82%, to $923.9 million, in 2020. Bookings have grown at an even greater pace, from $499.0 million in 2018 to $694.3 million in 2019 and then growing 171%, to $1.9 billion, in 2020. The business has also maintained a positive cash flow, clocking in at $400 million in 2020.
Roblox has been working on appealing to older users, too, with the number of daily active users between the age of 17 to 24 growing faster than those under 13. This is showing the platform is gaining relevancy and retention among the older generations, not just the younger.
The bear case
This business is operating in an industry with a rapidly growing number of competitors. Top oppositions include Unity, Sea Limited (Garena), Valve, and Epic Games, which all have similar business plans to Roblox, and Tencent and ByteDance which have heavily invested in the metaverse concept. Popular games come and go and it’s hard for one company to stay on top, so we can expect some volatility here with regards to popularity.
Another part of the bear case is the company’s young audience, who tend to have lower disposable income. Kids being the main audience shows that the company will have to work hard to
- retain users when they get older and move on to other platforms and
- b) acquire new users of the next generation, i.e. to stay relevant to kids’ interests. Kids move on quickly, which will be a challenge for Roblox, but I’m confident that given its size and popularity, this shouldn’t be a huge issue.
So, is this a good investment?
Absolutely! Roblox is taking the gaming industry by storm and its fundamentals and financials show that there is a good chance this will continue. Users love the product and continue to spend money on the platform. Don’t expect 2020 growth rates, but this company is still a great investment.
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MyWallSt operates a full disclosure policy. MyWallSt staff currently holds long positions in companies mentioned above. Read our full disclosure policy here.