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These 2 Hot IPO Stocks Are Back on the Move Friday

By Dan Caplinger - May 21, 2021 at 12:31PM

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Sometimes, a pause can be refreshing for a popular stock.

The stock market was mixed on Friday, with major market indexes climbing early but then starting to fall back as the morning progressed. Investors remain upbeat about the future of the U.S. economy but worry about inflation and the potential impact on the Federal Reserve's stance on interest rates. As of 11 a.m. EDT, the Dow Jones Industrial Average (^DJI 0.09%) was up 246 points to 34,330, and the S&P 500 (^GSPC -0.12%) had picked up 14 points to 4,174. However, the Nasdaq Composite (^IXIC 0.00%) had given up 13 points to 13,523.

Hundreds of stocks have gone public in recent months, and many of them have seen heightened volatility as the stock market has gone through various ups and downs. However, a couple of hot IPO stocks were among the market's best performers on Friday morning. Below, we'll look more closely at what sent Roblox (RBLX -0.69%) and Yalla Group (YALA 3.13%) sharply higher.

Roblox is building itself up

Shares of Roblox rose almost 9% on Friday morning. The video game platform provider just came public through a direct listing in March, and today's move higher sent the stock to its best levels ever.

Two young kids playing a game on a tablet.

Image source: Getty Images.

Roblox recently reported impressive financial results in its first quarterly release after becoming publicly traded. Revenue was higher by a staggering 140% compared to year-ago levels, and the number of daily active users was up nearly 80% year over year to more than 42 million players. Monetization has been somewhat of an obstacle because of Roblox's past emphasis on younger users, including many preteens who have to rely almost entirely on adults for money to make in-game purchases. However, Roblox reported a rising number of older players on the platform, which should help make it easier to monetize.

The big question facing Roblox is how it will perform as the world emerges from the COVID-19 pandemic. Video game activity rose significantly because of lockdowns, so as people return to other forms of entertainment, Roblox will have demonstrate it can avoid churn and post solid retention of its user base.

Nevertheless, Roblox has built a strong ecosystem, with millions of developers and content creators looking to the virtual world. Investors can expect more volatility, but Roblox has a lot of potential to keep growing in the video game industry.

Yalla goes on the attack

Elsewhere, shares of Yalla Group jumped more than 13%. The social media company focused on the Middle East and Northern Africa region had been the target of short-selling attacks, but Yalla made a response that gave shareholders more confidence.

Negative attacks on the company came from Gotham City Research, which believed that Yalla would eventually have to file for bankruptcy protection. However, Yalla directly responded to allegations, saying it hasn't put robots into chatrooms or done anything else to manipulate key metrics like user counts. It called Gotham's allegations "distorted, misleading, and unsubstantiated."

Moreover, Yalla put its money where its mouth is, starting a $150 million stock buyback program. That should allow the company to take advantage of low stock prices if they recur due to short-seller pressure.

Yalla just came public last September, and its stock price has more than doubled since then. By carving out a valuable niche in a fast-growing industry, Yalla has the potential for a long growth runway ahead as long as it's able to rebut attacks like Gotham's and demonstrate the true value of its addressable market.

Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Yalla Group Limited. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Roblox Corporation Stock Quote
Roblox Corporation
$48.90 (-0.69%) $0.34
Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
$32,832.54 (0.09%) $29.07
S&P 500 Index - Price Return (USD) Stock Quote
S&P 500 Index - Price Return (USD)
$4,140.06 (-0.12%) $-5.13
NASDAQ Composite Index (Price Return) Stock Quote
NASDAQ Composite Index (Price Return)
$12,657.55 (0.00%) $0.00
Yalla Group Limited Stock Quote
Yalla Group Limited
$4.61 (3.13%) $0.14

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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