Roblox (RBLX -2.67%) and Apple (AAPL -1.23%) are two very different types of tech companies that likely appeal to different kinds of investors.
Roblox has been a favorite investment for growth-oriented investors ever since it went public via a direct listing last March. Apple also generated strong sales growth last year as it rolled out its first family of 5G devices, but it provides a more stable blend of value and growth.
The differences between Roblox and Apple grew stark as rising inflation and interest rates rattled the tech sector.
Over the past month, Roblox's stock sank more than 20% as those macroeconomic headwinds caused investors to sell their shares of expensive, speculative, and unprofitable tech companies. Roblox checked all three boxes.
Meanwhile, Apple's stock rose nearly 10% as investors rotated toward safer blue-chip tech stocks. Analysts also fueled that rally by boosting their long-term expectations for Apple's upcoming AR, VR, and vehicle-related products. But will Apple stay ahead of Roblox throughout the rest of 2022?
Roblox is an exciting metaverse play
Roblox's platform enables people to create and share simple block-based games without any coding experience. It also enables its users to monetize their games with an in-game currency called Robux.
Roblox's simple approach made it popular with tween users. As a result, its revenue jumped 82% in 2020 as more students stayed at home and spent more time on their computers throughout the pandemic.
The bears expected Roblox's growth to decelerate in a post-lockdown market, but that slowdown hasn't happened yet. It generated triple-digit sales growth in the first nine months of 2021, and analysts expect its revenue to soar 196% for the full year.
Roblox's daily active users (DAUs) rose 31% year-over-year to 47.3 million in the third quarter. A fifth of those users came from the Asia-Pacific region, which outpaced all of its other markets with 75% year-over-year growth. The company's growth cycle could last for a long time, since its creators constantly create new experiences to attract more players. It's also an attractive platform for companies to launch new metaverse experiences.
However, its net losses continue to widen as it pays out high developer exchange fees (the cash payments for creators who trade in their Robux for real-world currencies) and big stock-based compensation expenses. Next year, analysts expect Roblox's revenue to rise 21% against some tough year-over-year comparisons as its net loss widens again.
Roblox's stock isn't extremely expensive at 16 times next year's sales, but that price-to-sales ratio is still a bit frothy for a company with murky long-term growth prospects. It's still unclear if Roblox's tween users will stick around as they age, if it can lower Robux's exchange rate to boost its margins without alienating its creators, and if it will ever turn a profit. Those uncertainties make Roblox a tough stock to own as interest rates rise.
But Apple offers more predictable returns
Apple's revenue rose 33% in fiscal 2021, which ended last September. Its iPhone sales, which accounted for over half of its top line, jumped 39% after it rolled out its first family of 5G devices. Its diluted earnings per share, which benefited from nearly $86 billion in stock buybacks, soared 71%.
Analysts expect Apple's revenue and earnings to grow just 4% and 2%, respectively, this year, as the 5G upgrade cycle cools off. The ongoing chip shortages and supply chain challenges will also throttle its growth.
That slowdown is disappointing, but investors should recognize Apple's other strengths. A recent CIRP survey found that 90% of iPhone users plan to stick with Apple instead of switching to an Android device. It also ended fiscal 2021 with 745 million paid subscribers across all of its services, which grew nearly five times from five years ago and further increases the stickiness of its ecosystem.
Apple's hardware sales should stabilize after it resolves its supply chain shortages, and its luxury appeal will enable it to easily pass on its higher costs to consumers -- which makes it an inflation-resistant investment. Rising interest rates also aren't a major issue for Apple, since it's firmly profitable and ended last year with $191 billion in cash and marketable securities.
Apple will likely introduce new augmented reality, virtual reality, and electric vehicle products to significantly expand its ecosystem over the next few years. It could also make a lot of acquisitions to accelerate those ambitions, which would expand its reach far beyond its iPhone, iPad, and Mac products.
Apple's stock looks historically expensive at 32 times forward earnings, and its paltry forward dividend yield of 0.5% won't attract any serious income investors. Nonetheless, Apple's resilience in a market rattled by higher inflation and interest rates might justify that slight premium.
The winner for 2022: Apple
Roblox is still a promising investment for long-term growth investors, but I doubt it will outperform Apple this year.
Roblox still faces too many uncertainties to be considered a stable investment in a shaky market, and it should remain out of favor as long as interest rates keep climbing. I'm not sure if Apple will outperform the broader market this year, but it will likely generate stronger returns than Roblox as investors gravitate toward quality instead of speculative growth.