The markets have seen plenty of volatility in the wake of record-high inflation, corresponding interest rate hikes, and global economic impacts traceable to the war in Ukraine. High-growth companies in early-stage industries have been particularly vulnerable, including those focused on the development of the metaverse.
The metaverse is still in its early stages and the digital worlds being created with new technologies and plenty of computing power have the potential to disrupt an assortment of industries, including gaming, sports, real estate, media, retail, and fashion, among others.
This combination of market volatility with a young, growing, potentially vast industry, has led to certain stocks with promising opportunities seeing their share prices plummet for no solid reason other than being caught up in the broader sell-off. For example, one such company is poised to benefit from the metaverse revolution as well as being poised to benefit shareholders who buy in while shares are trading down 76% year to date.
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Roblox makes sense for metaverse investors
Roblox (RBLX 6.72%) is a platform and game-creation system that allows its users to develop video games and play games created by others. Serving as one of the purer plays in the rapidly expanding metaverse, many of the games featured on its platform involve virtual worlds where people come together and interact. After experiencing a sharp spike in demand during the worst of the pandemic, Roblox's business has lately cooled off somewhat by comparison. That said, once comparable metrics normalize and the metaverse revolution gains more momentum, the company is well-positioned to benefit from robust growth.
NYSE: RBLX
Key Data Points
Roblox management reported a mixed first quarter to kick off 2022. Its top line surged 38.8% year over year to $537.1 million, and its bottom line finished at a negative $0.27 per share, which missed estimates but still improved from its $0.46 per-share loss in the same quarter a year ago. Total bookings declined 3.2% to $631.2 million, coming in below analysts' expectations.
Bookings refer to the amount of its virtual currency, termed Robux, which users purchase to buy virtual items like avatars and accessories on the gaming platform. Investors should closely monitor this metric, as it's a great indicator of trends in the company's operational performance. The company doesn't recognize bookings as revenue until the Robux is used to purchase items.
Daily active users (DAUs) on the platform jumped 28.5% year over year to 54.1 million, but average bookings per DAU decreased 24.6% to $11.67. Gamers are spending more time on Roblox, however, with total hours engaged climbing 22.2% year over year in Q1, up to 11.8 billion.
The major concern is whether the company can sustain the necessary growth to eventually turn a profit. Investors can expect patchy growth rates in the near future as the company continues to battle unfavorable comparable metrics from a year ago. But given the metaverse's long-term potential and the company's sinking price-to-sales multiple, which currently sits at 7.3, the stock definitely deserves some consideration today.
High risk with the potential for runaway gains
Roblox stock is young, volatile, and built for daring investors with the stomach to manage the current ups and downs. The company is not yet profitable, and while its user base and engagement expanded in its latest quarter, growth is projected to unwind for the foreseeable future. Plus, the metaverse is still a foreign idea to many consumers, so it could take several years for the concept to gain meaningful traction. But Roblox's long-term potential is through the roof.
While its near-term financial performance may be underwhelming, the company shouldn't be looked at as a short-term investment. Over the long run, this stock could generate massive gains for patient investors who buckle up and buy shares at current price levels.
