The metaverse pioneer has thrived during the pandemic. Roblox (RBLX -12.55%) has gained millions of daily active users, and revenue has exploded. The stock responded to the business's success, rising to over $120 per share at the peak. However, the stock has fallen sharply off the highs and is now trading at $50. 

There is undoubtedly a reason for the market to be concerned about Roblox; economic reopening is starting to hurt engagement figures. That said, the headwinds from reopening have so far been mild. The dislocation between the mild falloff in engagement and the dramatic fall in the stock price has created an opportunity for long-term investors to accumulate shares in Roblox. What follows are three reasons that make Roblox a buy and one reason to hesitate. 

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1. A substantial user base 

As of February, Roblox boasted 55.1 million daily active users. That was up by 28% from the same time a year ago. Note that Roblox is free to join and use. Still, so are YouTube, Instagram, Facebook, Tiktok, and more. Today's consumers have a myriad of options for free entertainment; the fact that Roblox attracts 55 million people daily is impressive.

If Roblox is free to join and use, how does it make money? By selling an in-game currency called Robux required for premium items and experiences on the platform. Roblox does not create any of these on its own. Instead, it incentivizes third-party developers to do the work. Herein lies another advantage of a massive user base; it creates a lucrative opportunity for developers who can create things for users to spend Robux on. 

A person on an iPad.

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2. Excellent cash flow from operations 

In its fiscal year ending Dec. 31, Roblox generated $659 million in cash flow from operations. That was up from the $524 million it earned in the metric during the same time the year before. To put the figure into more context, Roblox's revenue in the year ending Dec. 31 was $1.9 billion and in the year before that, $924 million. 

Roblox's high percentage of cash flow to revenue arises from how the company has organized the business. The marketplace on Roblox's platform operates only on Robux. Therefore, users need to pay for Robux up front before using currency to purchase items. Additionally, as mentioned above, Roblox does not create these items in-house, and Roblox only pays third-party developers after consumers have used Robux on their creations. 

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3. Untapped potential 

Interestingly, even though Roblox boasts over 55 million daily active users, it is only making money from a small percentage of them. The company earns nearly all of its revenue from players that deposit real money to buy Robux. In its fiscal year ended December, only 678,000 out of Roblox's 45.5 million daily active users were paying customers. That leaves nearly 45 million daily users Roblox is not monetizing.

This presents an untapped opportunity for Roblox to generate more revenue. For instance, if it can develop the capability to monetize these users through advertising, that could meaningfully boost revenue and enhance profitability. 

1 reason to sell Roblox 

The one reason to sell Roblox has to be the uncertain headwinds in the near term from economic reopening. Several metrics are turning downward after surging growth at the pandemic onset. Bookings, which measure customer purchases of Robux, were down by 3% in February from last year. Accounting for user growth, average bookings per daily active user were down 24.5% year over year in February.

There is no telling how long or how serious the adverse effects of economic reopening will be. Management expects the headwinds to taper off around May or June, but it can be challenging to pinpoint the timing. Even with the elevated risk of not knowing how bad the near-term headwinds will be, the long-term prospects of the business are positive enough to warrant a purchase of Roblox stock. Especially considering the stock, down over 62% off its high, has arguably already paid the price for the downside risk.