After big sell-offs last year, valuations for both Roblox (RBLX -2.73%) and Carnival (CCL -2.05%) have come rocketing back. Roblox stock has climbed roughly 38% across 2023's trading, and Carnival's share price has skyrocketed roughly 88% year to date.
Would investors be better off putting their money behind the metaverse innovator or the cruise line giant? Read on for profiles of both companies and a determination of which stock looks like the better buy right now.
Roblox: The rebounding metaverse leader
First launched in 2006, Roblox is a platform that houses a wide range of gaming and social experiences. The company is an early leader in the metaverse space, and its online virtual world has become enormously popular -- particularly with children and teenagers.
After seeing user engagement and bookings growth stagnate as the business lapped periods of performance elevated by pandemic-related conditions, Roblox is back to posting strong growth.
Total daily active users on the company's platform jumped 22% year over year to reach a record 66.1 million, and total combined engagement hours from all users of the service rose 23% to reach 14.5 billion. Thanks to continued user growth, bookings in the quarter rose 23% compared to the prior-year quarter and reached $773.8 million. Meanwhile, the business posted non-GAAP (adjusted) free cash flow (FCF) of $81.9 million in the quarter, and operating income of $173.8 million.
On other hand, Roblox isn't profitable yet. The business posted a net loss of roughly $268.3 million in the first quarter -- up from a loss of $160.2 million in the prior-year quarter. The company does have solid financial footing, with roughly $2.5 billion in cash and investments against $1 billion in debt, but it remains to be seen whether the business will be able to continue growing and make the transition to recording consistent profits.
Carnival: The resurgent cruise operator
With travel restrictions, masking, social distancing, and other pandemic-related headwinds having now receded, Carnival's business is seeing some strong rebound momentum. In the cruise line company's first quarter, revenue rose 173% year over year to reach $4.43 billion and beat the average analyst sales estimate by roughly $130 million.
Sales for the period have now nearly recovered to pre-pandemic levels, and the company's loss per share of $0.55 was also significantly lower than the average analyst forecast for a per-share loss of $0.61.
The cruise business also shifted into posting positive free cash flow on an adjusted basis in Q1, and management expects to record positive adjusted FCF this year. It also expects a substantial FCF increase in 2024 thanks to sustained revenue growth and gross margin improvement, and analysts broadly predict a return to adjusted profitability next year.
Unfortunately, Carnival carries tons of debt on its books. With a market capitalization of roughly $20 billion, and $35 billion in debt, the company's financial position presents some big challenges.
The cruise specialist expects to have trimmed its outstanding debt from $35 billion to $33.5 billion by the end of this year, but it will continue to incur high interest expenses. In the first quarter alone, the company was hit with roughly $500 million in interest costs on its debt.
Carnival has also been facing rising operating expenses as fuel and food costs have risen substantially over the last few years. While passenger demand has been strong coming out of the pandemic, the company needs to prove that it can generate sufficient cash to pay down its debt load.
So, which stock is the better buy?
While Carnival appears to be on track to return to adjusted profitability in 2024, it's going to be saddled with large interest payments for years to come. Alternatively, it's not clear when Roblox will be profitable, but the metaverse company's current financial foundation looks pretty sturdy.
Ultimately, I believe that Roblox will prove to be the better buy for long-term investors. Carnival stock has already seen much bigger gains this year, but the company still has a mountain of outstanding debt and interest headwinds to overcome.
Meanwhile, Roblox has returned to reaching new engagement and bookings records, and its relatively asset-light business model and solid FCF generation suggest that the business has a good shot of shifting into profitability as the platform continues to scale.
