It's only been a publicly-traded company since March, but Roblox (RBLX -4.25%) has managed to cause quite a stir in those nine short months. Shrugging off the usual blues that follow a market debut, shares of the company are up a healthy 150% from their initial offering price. The market seems just as stoked now about Roblox's potential as it did early this year.
Perhaps it should. The Roblox gaming platform is now 15 years old, proving it has the lasting power that few games in the industry can attain.
That's got everything to do with how the company approaches gameplay. It's also the reason investors -- even investors that typically prefer to steer clear of newcomers -- may want to put Roblox on their watchlist of potential purchases. The only thing worth waiting for now is a decent pullback.
Roblox is reaching critical mass
If you're not familiar, Roblox is a video game, although that simple description doesn't do it justice. More specifically, Roblox is a platform through which anyone can build a virtual world and invite other gamers to play inside the digital arena.
Perhaps most importantly, these creators can monetize their work by charging other players to access their virtual world. There's nothing else out there quite like it. Lots of game developers frequently update their virtual worlds to host multiplayer gaming. None of them facilitate the creation of an unlimited number of worlds by gamers themselves, though.
And interest in the idea has exploded in the past few years, ushered along by the COVID-19 pandemic. The company's third-quarter top line grew 102% year over year, and year-to-date revenue is up 120%. It's still in the red on a GAAP basis, but this recent growth spurt is the one that's made a meaningful dent in its losses. Roblox's year-to-date operating cash flow is up 55%. Analysts expect similar growth going forward.
There's still lots of tweaking (and marketing) to be done, to be sure. The unique business is clearly progressing toward fiscal self-sustainability, though, and the company itself has achieved a sort of critical mass.
However, it's not just mere gameplay that makes the Roblox platform as marketable as it's proving to be.
Ever heard the word metaverse? It's a relatively new term and still not an especially well-defined one. Broadly speaking, though, the metaverse is a casual virtual reality that serves as a substitute (of sorts) for the more conventional use of the internet. Imagine that, rather than typing messages back and forth on a friend's Facebook page, you and that friend -- and all your other friends -- can gather in a virtual setting using digital avatars. The metaverse is the virtualization of pretty much anything you can imagine, from banking to work to shopping to social networking and more.
In many ways, Roblox gameplay is a form of the metaverse. The gaming platform is also an outlet for creators as well as a social gathering place that develops communities in an environment where conventional social networking has turned more than a little toxic. Brands are finding it to be a well-suited means of casually connecting with consumers as well. Nike is using the Roblox platform as the basis for what's being called Nikeland. Shoemaker Vans and carmaker Hyundai are also leveraging Roblox's virtual world-building tech to promote their products. That's only the tip of the iceberg now that more adults are plugging in. Look for other partnerships like these going forward.
In the meantime, it's no small crowd. Estimates of monthly visitors to a Roblox-hosted world peg its user count at around 150 million. That's great for a less-than-mainstream game that hasn't tapped into the sort of marketing firepower bigger gaming franchises have at their disposal -- firepower that Roblox is now starting to test after raising funds with a private offering at the beginning of 2021, followed by the public offering just a few weeks later.
Right stock, wrong time
Despite its promise, the stock still falls on the speculative side of the fence and may not be a great fit for everyone's portfolio, particularly right now since it's struggling under the weight of its major gains since mid-November. Although the steep rally was prompted by the aforementioned third-quarter results that saw the top line double and firm progress on the bottom line -- not to mention total engagement was way ahead of expectations -- the rally has gone too far, too fast. The stock has peeled back a bit from its November peak, but it could take a little more time before that froth has fully burned off. Choose your entry point carefully.
It's certainly a promising name to add to your watchlist, though, and be ready to buy on the next significant dip.