Is Roblox Stock a Buy Now?

Recent IPO Roblox (RBLX -2.25%) is one of the most interesting mobile gaming companies in the market, with a platform that is wildly popular with younger users. In this Fool Live video clip, recorded on Nov. 8, Fool.com contributors Matt Frankel and Danny Vena discuss Roblox's business and whether it might be worth a look right now. 

Matt Frankel: This is Roblox, ticker symbol RBLX. I just think this is an interesting company. I can't believe Danny said he's watching Rivian (RIVN 1.03%), but he's not necessarily going to buy it. Roblox is like that with me. It's a company that I'm watching closely. I think it has a lot of potential. It's a really interesting company. I just don't get the gaming space quite as much as a lot of investors do, so I haven't bought it yet. But Roblox is a gaming platform with a user base that skews very young.

About 60% of Roblox's users are under the age of 16, so very young user base. It's a freemium model. You can download the app for free, get into the Roblox Universe, and then you buy what they call Robux, that are the currency used within the games. Roblox takes a 30% share of whatever revenue it gets. The developer, whoever developed whatever part of the platform that it's being used on get's 70%, like the App Store model. Roblox reports earnings today. Unfortunately, we don't have any recent results to share.

But, in the second quarter, it was really impressive. Roblox more than doubled its revenue year-over-year. They're still running at a loss, but when you're doubling revenue, who cares, as long as the loss is manageable, which it is. Bookings, which is revenue that people buy Robux but having spent them yet, bookings are up 35% year-over-year, which is impressive, considering that was compared with the pandemic shutdown filled second quarter of 2020. They're still growing based on after shutdown numbers, it's pretty impressive. A little over 43 million daily active users, that was up 29% year-over-year.

One thing that Roblox is trying to do is diversify the age group that uses its platform. They're doing that nicely. Growth in the 13-17 demographic was up 46% year-over-year in the second quarter. That was growing quicker than the overall total. Free cash flow positive, but like I said, still operating at a net loss. Another case of valuation combined with a total lack of understanding of the business, but definitely a lack of understanding of the gaming space in general, especially in what games appeal to the 16 and under demographic makes me a little hesitant to invest in the business. I know Jason doesn't own any of these stocks, but let's start with Danny. Do you own Roblox, and why did you rank it where you did?

Danny Vena: I don't own Roblox. Again, this is another company that I'm watching, but my concern is the fact that, like you said, that their user base skews young, which is by design. The thing that I think is a plus for them is the fact that they have basically tutorials that can teach their young users essentially what amounts to drag and drop developing. These young users can go through some classes, they can learn how to create a game, and if it gets picked up, then they can make amend.

I think the thing for me that would make this a no brainer would be, if they're able to start expanding beyond the user base they have now and start that age group skewing a little older because if they can do that, and I think they have the tools in place to do it, If they can do that, I think this would essentially takeoff because then you have millions upon millions of people who don't have developer skills, but might have great ideas to create a game, would be able to get in on the action. Again, I ranked it as low as I did because I think there are limits because the age skew is young, but I also think there's potential for much more.