Roblox (NYSE: RBLX) is Not a "Buy" Yet, But the Long-Term Potential Remains Immense

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One of the macro growth megatrends that are poised to be a driver of the economy and in turn the stock market is people spending more and more time in virtual worlds, collectively known as the metaverse. People are choosing to interact with others and with society at large digitally, building ecosystems, engaging in commerce, forging relationships, and playing games all online.

Creating a virtual world and games that can be played by users globally is one of the biggest metaverse use cases, and Roblox Corporation (NYSE: RBLX) is one of the companies driving its growth. Chances are if you have kids, you have seen them playing Roblox games which feature avatars of users who look like blocky Lego people. The Roblox platform consists of four business units: Roblox Studio which allows users to create and publish virtual games and landscapes, Roblox Client which facilitates users’ ability to explore the virtual worlds and games, Roblox Education for learning purposes, and Roblox Cloud which is the infrastructure that powers the platform.

Metaverse stocks, including Roblox, are now widely followed among Wall Street analysts so the investment community is beginning to have its collective eyes opened to digital worlds as a macro trend. Roblox is followed by 13 analysts currently who estimate the company will grow revenues by 3.8% in 2022 and 21.5% in 2023 compared to 2021 revenue of $1.9 billion. Growth stocks have been pummeled over the past few months during this recent bout of downward volatility, so going forward Roblox, like other growth companies should have favorable metrics to compare to.

I see two major competitive advantages that Roblox has compared to other metaverse stocks, the ability for users to create games using Studio and the appeal of the platform to kids. Young users who learn to create games and worlds within the Roblox platform will have a natural affinity for the ecosystem, and it is quite feasible to build a case for the company to grow among older users as parents use the platform to learn about the universe their kids are spending time in. The company reported that in the fourth quarter of 2021 52% of its 49.5 million daily active users were above age 18, showing promising early results in the push to attract older users.

It’s not just individuals that are choosing to focus their time in the metaverse, but brands as well. Roblox stands to capitalize on brand partnerships from companies that want exposure to the company’s user base which currently stands at nearly 50 million and growing. Recently Gucci, Nike, and Forever 21 have set up virtual stores in the Roblox ecosystem, and the company is working with Sony to create concerts in the metaverse. Brand partnerships allow Roblox to blend users’ online and offline lives, increase engagement among users, and for those on the fence about jumping into the metaverse a partnership can be the tipping point.

Research firm Gartner estimates that 25% of people will spend at least one hour a day in the Metaverse by 2026, whether it be for work or play. Bloomberg estimates that the metaverse could be an $800 billion revenue opportunity by 2024 when gaming, live entertainment, and social media are all factored in. Roblox is one of the leading metaverse companies and its young and growing user base has it poised to be a leader in the macro growth trend that looks to define the coming decade or more.

Disclosure: No position. Spotlight Growth has no relationships with any of the companies mentioned in this article and did not receive payment in any form for its creation. This is an opinion article and is not meant to be financial advise. We are not broker-dealers or investment professionals. Please conduct your own due diligence. For more information on our disclosures, please visit: https://spotlightgrowth.com/disclosures/

Roblox (NYSE: RBLX) is Not a “Buy” Yet, But the Long-Term Potential Remains Immense

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