Roblox's social gaming platform -- which enables players to create, share, and monetize block-based experiences without any coding knowledge -- attracted millions of younger gamers throughout the crisis. Nintendo sold more Switch consoles, and millions of cooped up gamers flocked to the casual online world of Animal Crossing: New Horizons to socialize with other people.
However, both companies experienced decelerating growth last year as the lockdown measures were relaxed. Should investors consider buying either gaming stock right now as they face challenging post-lockdown comparisons?
The differences between Roblox and Nintendo
Roblox generates most of its revenue by selling a virtual currency called Robux. Its players can use Robux to buy additional in-game experiences, items, and cosmetic upgrades for their avatars. It also offers subscription plans, which grant players a monthly stipend of discounted Robux.
Nintendo makes most of its money by selling Switch consoles and games. It generates a sliver of its revenue from older consoles, mobile games, playing cards, and licensing fees for its franchises.
Roblox gauges its growth in terms of daily active users (DAUs), engagement hours, and average bookings per DAU (ABPDAU). Nintendo mainly reports its growth in terms of console and game shipments. Roblox is also deeply unprofitable, while Nintendo's bottom line is firmly in the black.
Roblox faces a tough post-lockdown slowdown
Roblox's revenue surged 82% to $924 million in 2020, then jumped another 108% to $1.92 billion in 2021. Those growth rates seem impressive, but its bookings -- which include its deferred revenue and other adjustments -- actually give investors a clearer picture of its underlying growth.
Roblox's bookings surged 171% to $1.88 billion in 2020 as more people played its games throughout the pandemic, but grew just 45% to $2.73 billion in 2021 as more students returned to school.
Roblox ended 2021 with 45.5 million DAUs, representing 40% growth from a year earlier. Its total engagement hours grew 35% to 41.4 billion, but its ABPDAU increase just 4% to $59.85. Moreover, its ABPDAU actually declined year-over-year in both the third and fourth quarters of the year.
Roblox also recently revealed that its bookings rose just 2%-3% year-over-year in January, and that its ABPDAU likely declined 22%-23% during the month. Roblox blames that slowdown on its overseas expansion and a focus on gaining older users, but its high-growth days are clearly over. Analysts expect its reported revenue to increase just 23% in 2022.
On the bottom line, Roblox's net loss widened from $71 million in 2019 to $253 million in 2020, then widened again to $492 million in 2021. Analysts expect it to remain deeply unprofitable for the foreseeable future.
Nintendo could generate stronger growth in 2022
Nintendo's revenue soared 34% to 1.76 trillion yen ($15.2 billion) in fiscal 2020, which ended last March. Its shipments of Switch consoles and software units both grew 37% as more people stayed at home.
But in the first nine months of 2021, Nintendo's revenue declined 6% year-over-year to 1.32 trillion yen ($11.4 billion). Its Switch shipments tumbled 21% due to a tough comparison to the previous year and ongoing supply chain challenges, but its software shipments still rose 2%. Nintendo expects its revenue to decline 6% for the full year.
Nintendo's net profit surged 86% to 480 billion yen ($4.15 billion) in 2020, but dipped 3% to 367 billion yen ($3.18 billion) in the first nine months of 2021. It expects its net profit to decline 16% for the full year.
For 2022, analysts expect Nintendo's revenue to stay nearly flat with just 6% earnings growth. Those growth rates seem anemic, but several catalysts could help it exceed analysts' expectations: a resolution of its supply chain issues, robust sales of the Switch OLED, big upcoming games (including Metroid Prime 4 and a new Legend of Zelda game), and the expansion of its franchises beyond video games with new licensing deals.
The valuations and verdict
Roblox can't be valued by its profits yet, but it trades at about ten times its 2022 sales after its recent post-earnings pullback. Nintendo trades at 16 times forward earnings and just four times this year's sales.
Roblox is growing faster than Nintendo, but it faces a much more challenging slowdown. Its lack of profits and high debt-to-equity ratio of 6.7 could also limit its appeal as interest rates rise. Nintendo's brand is stronger, its business is better diversified across the hardware and software markets, it's firmly profitable, and it has a low debt-to-equity ratio of 0.3.
Nintendo might not attract a lot of attention from the bulls until it finally unveils a proper successor to the Switch, which was launched nearly five years ago. Nonetheless, it's still a much more appealing investment than Roblox in this challenging market for pandemic-era growth stocks.