Roblox (RBLX -3.66%) is an online gaming platform that lets users play games in various virtual 3D worlds. Along with having countless games and experiences to enjoy on the platform, users can also create their own games and experiences that others can play and enjoy. The large community aspect of Roblox has made it a huge hit among children and adult video game enthusiasts.
Roblox went public in March 2021 at $62.50 per share, and by November 2021 its stock price was over $130. It's since dropped over 70%, but it's up 45% in 2023 -- solidifying a roller-coaster two years for investors. Given Roblox's stock price gains this year, investors are rightfully wondering if it's too late to hop aboard.
Show me the money
In the first quarter of 2023, Roblox brought in $655 million in revenue, up 22% year over year. Although the company has yet to hit profitability, that's to be expected at this stage of growth. In Q1, Roblox spent over $275 million on research and development, around $98 million more than it spent in the year-ago quarter.
A more important (and impressive) figure right now is Roblox's nearly $174 million in cash flow from its operations. At this stage, cash flow gives better insight into how sustainable the company's operations are, and the figure came in better than expected. Profitability is on the way; it's just not a priority for Roblox right now.
Impressive user metrics
Despite how you feel about Roblox's financials, it's hard to argue against a lot of its key user metrics. Roblox had around 66.1 million daily active users (DAUs) in Q1, a 22.2% year-over-year increase. This was an encouraging sign considering its DAUs were essentially flat from the third quarter to the fourth quarter of 2022. that's also almost 40 million more than the company had three years ago.
This spark in DAUs came with a noticeable increase in hours spent on the platform. The 14.5 billion hours users spent on the platform in Q1 is over 1.6 billion hours more than the previous quarter. This is noteworthy because of Roblox's business model.
Roblox makes most of its money by selling its virtual currency, Robux, which players use to buy items like virtual clothing, game passes, avatar upgrades, and other audio/visual content. The longer that users spend on the platform, the more likely they are to spend money.
Addressing age concerns
One of the more common concerns with Roblox is how well it can continue to grow and retain users as they become older. Roblox isn't naive to the fact it needs retention among older users to keep growth going, and it's been taking steps to address that with a "for us, by us" approach that incentivizes developers to contribute to the platform.
In Q1, users older than 13 accounted for 56% of hours spent on the platform (up from 49% in Q1 2021). Users between the ages of 17 and 24 were Roblox's fastest-growing segment, up 35% year over year. It seems the deliberate steps Roblox is taking to make its platform attractive to older users are working. It also helps that older users are more likely to have their own money to spend on the platform. It can be a long-term win-win for Roblox.
Advertising is right around the corner
Robux are a moneymaker for Roblox, but there's no doubt that advertising will play a big role in its revenue growth in the long run. As a metaverse, Roblox has similar advertising opportunities to what companies in the real world have, such as placing billboard-like items in its worlds.
The company hasn't given too much insight into its advertising business, but it did say it will "make a small amount of advertising revenue in Q2." I'm not expecting any jaw-dropping numbers, but any revenue is a positive sign of what can come as the platform develops.
Better play for long-term investors
At current price levels, it seems like Roblox's stock is priced with future growth already factored into it. This is the case with a lot of growth stocks as investors are willing to pay a premium because of their high expectations. Still, it's worth noting because it means Roblox has to keep above-market growth going to justify its valuation.
For investors looking for a quick turnaround, Roblox's stock may not be the right move. If you're a long-term investor, it's worth starting (or increasing) your stake. The company is trending in the right direction and only beginning to scratch the surface of potential growth opportunities.
