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Why Roblox Stock Is Up 26% This Week

By Brett Schafer – Nov 11, 2021 at 9:50PM

Key Points

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The metaverse company reported stellar Q3 earnings.

What happened

Shares of Roblox (RBLX 0.76%) are up 26.6% this week, according to data from S&P Global Market Intelligence. The metaverse/digital experiences platform reported its third-quarter results this week, and investors bid up the stock to all-time highs after the report.

So what

On Nov. 8, Roblox announced its earnings for Q3, which ended in September. Bookings (Roblox's sales equivalent) were up 28% year over year to $637.8 million. This might not seem like explosive growth; bookings grew 200% year over year in Q3 of last year, making a tough comparison from the heart of the pandemic to this quarter. 

A person playing a game on their phone.

Image source: Getty Images.

Turning to the bottom line, Roblox had $170.6 million in free cash flow last quarter, which shows how profitable this platform can be even while the company reinvests for growth. Roblox's business model is to sell virtual dollars called Robux so users can pay for video game experiences and virtual goods. These have super-high margins, giving Roblox a lot of room for future investments while also generating profits.

Another important line item for Roblox is daily active users (DAUs), which show how many people are getting attracted to the platform. DAUs were 47.3 million at the end of Q3, up 31% year over year. Investors should expect DAUs to continue marching up if Roblox is going to be a successful investment. 

Now what

With the stock up so much this week, Roblox has a market cap of $56.8 billion. With around $600 million in free cash flow generated over the past 12 months, the stock trades at a price-to-free cash flow (P/FCF) ratio of 95, which is very expensive. However, if you believe Roblox can continue growing its user base at a rapid clip as it tries to bring its platform to more and more people around the world, the company could have a bigger market cap than $56.8 billion one day. 

Brett Schafer has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Roblox Corporation. The Motley Fool has a disclosure policy.

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