The rise of the metaverse has the potential to be one of the most influential technology trends of the next decade. Video games already boast levels of engagement that trounce those of nearly every other entertainment medium, and applying some of the basic precepts of interactive virtual worlds to platforms for online socialization and business could present revolutionary growth opportunities. Some industry insiders and analysts even think that the metaverse will evolve into a multitrillion-dollar annual market.

While the metaverse has huge potential over the long term, the market has recently lost its appetite for stocks that trade at forward-looking, growth-dependent valuations. That means that there are some promising companies in the metaverse space that now trade at huge discounts compared to recent highs, and the big sell-offs have created opportunities to build positions in innovative and influential companies. Read on for a look at a metaverse leader trading down 76% from its recent high that's worth investing in today.

A person wearing a VR headset.

Image source: Getty Images.

Roblox is a metaverse pioneer with a beaten-down valuation

Roblox (RBLX 4.05%) provides an interactive world that contains thousands of unique games and experiences, and it's already a leader in the metaverse space. Creators can also make their own games, items, and other content within the overarching world and earn virtual currency that can be exchanged for real money if other users interact with their creations. This sets up a dynamic whereby the creation of new content for the Roblox metaverse is incentivized, and it's helped the platform attract a large, highly engaged user base. 

Despite posting explosive bookings and user growth last year, Roblox now trades down roughly 51% from market close on the day of its initial public offering in March 2021. 

What's driving the big sell-off?

Roblox saw engagement and spending surge due to pandemic conditions, but it's now up against difficult comparisons, as these tailwinds are receding. Making matters worse, concerns about rising interest rates, high inflation, and other macroeconomic factors have generally caused growth stocks to fall out of fashion with investors

The chart below tracks Roblox's average bookings per daily active user (ABPDAU) across its last four reported quarters and midpoint performance estimates for January and February provided by the company. 

A chart showing Roblox's average bookings per daily active user.

Data source: Roblox. Chart by author.

Based on midpoint projections, ABPDAU fell roughly 22.5% year over year in January and 24.5% in February. While the company estimates that overall bookings grew between 2% and 3% in January, it expects that bookings fell between 2% and 4% in the subsequent month. Based on those targets, it looks as if Roblox will record a percentage decrease in ABPDAU in the low to mid-20s in the first quarter and see a bookings performance that comes in somewhere between flat and down low single digits compared to the prior-year quarter. 

That's generally not the kind of momentum you'd like to see for an unprofitable company trading at roughly 6.8 times this year's expected sales, but uneven performance in the near term is less concerning when viewed in the context of pandemic-related trends and the business's remaining expansion potential. While ABPDAU has been sliding recently, Roblox has continued to make progress with user growth.

A chart showing Roblox's daily active user growth from Q1 2021 to February 2022.

Data source: Roblox. Chart by author.

The company's daily active-user count saw a big jump in January, then another smaller jump in February. Meanwhile, total hours of engagement on its platform in the months rose 35% and 21% year over year, respectively. 

Roblox has an attractive model for long-term growth

The continual creation of new experiences keeps the Roblox world fresh and interesting and should help it continue to attract users. In turn, that attractiveness will make the platform more attractive to creators because it will improve their earning potential. Roblox has also already attracted partnerships from major brands, musicians, and artists, and there are plenty of untapped opportunities for its metaverse to grow as a promotional platform and work to supplement the core business built around user spending. 

With the stock down more than three-quarters from the recent peak it hit in November, this metaverse leader stands out as a worthwhile buy.