Roblox (RBLX +3.31%) is one of the pioneers of the metaverse, an internet space where users can interact with each other and the environment virtually. The company is set to report third-quarter earnings on Nov. 8.
Taking center stage in investors' minds will be how Roblox is reacting to the recent announcement of Meta Platforms (FB +1.89%), formerly known as Facebook. The name change is a result of the company's shifting focus to the metaverse.
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Roblox has attracted a powerful competitor
Roblox has spent years developing its metaverse platform, and in its most recent update on Sep. 15 it had 48.2 million daily active users. That was up 32% from the same time last year. As significant as the figure may seem, it could look minuscule compared to the lofty expectations from Meta.
Listen to what Meta CEO Mark Zuckerberg had to say on the matter: "I also want to share some thoughts on our longer-term efforts to build the next computing platform and help bring the metaverse to life. This is a major area of investment for us and an important part of our strategy going forward... Our goal is to help the metaverse reach one billion people and hundreds of billions of dollars of digital commerce a day."
Overall, Meta plans to spend $10 billion in building out its metaverse over the next several years. That's a staggering sum from Roblox's perspective. In its most recent quarter, Roblox earned revenue of $454 million. Considering resources alone, Roblox cannot possibly compete on the same playing field as Meta.
Part of the competition will play out over attracting developers to create the infrastructure and content for the metaverse. With more resources, Meta can attract the attention of developers looking for better economics for their efforts. Still, the surge in demand for developers could encourage more people to enter the field, which would benefit Meta and Roblox alike.
It is still early days in Meta's commitment to the metaverse, and it remains to be seen how it will affect Roblox. That's why this earnings report will be so interesting. Investors will want to hear management's commentary on the increase in competition and its thoughts on the effects.
Roblox stock is showing resilience
For the third quarter, analysts on Wall Street expect Roblox to report revenue of $636 million and a loss per share of $0.14. If the company hits the revenue estimate, it would be a 163% increase from last year's same quarter. Investors were concerned that as economies reopened and kids returned to school, Roblox would experience a loss of engagement and revenue, a scenario that is not playing out so far.
That isn't to say Roblox has stayed clear of trouble. A technical issue caused an outage on its platform where players could not access the site for several days. Despite the threat of increasing competition, reopening economies, and system outages, Roblox stock is still up 17% year to date. The company keeps growing revenue and users rapidly, and until that shows signs of reversing, its stock could keep rolling higher.
