After struggling last year due to macroeconomic challenges, growth stocks have generally enjoyed much stronger performance in 2023. At the same time, there are still high-quality growth stocks trading at just a fraction of their valuation peaks.
For risk-tolerant investors seeking potentially explosive plays, backing the best of the remaining beaten-down growth stocks could be a path to noteworthy returns. Read on to see why two Motley Fool contributors believe that building positions in these leading technology and media companies would be a great move right now.
Roblox is on the verge of new growth drivers
Keith Noonan: Roblox (RBLX 1.35%) is an early leader in the metaverse and a stock that could deliver huge wins for long-term investors. In addition to offering games and social experiences, the platform is evolving to become a general media hub. Platinum-selling musical artists have already hosted concerts on the platform, and top fashion brands host explorable spaces in the online virtual world. The company has even launched a suite of tools that turn its virtual world into an educational platform.
Down 81% from its high, Roblox looks like a smart buy on the heels of encouraging business performance.
Roblox's revenue climbed 22% year over year to hit $780.7 million in the second quarter, and the company's average daily active users (DAUs) increased 25% to 65.5 million. The business is seeing even stronger growth outside of the North American market. Bookings for the platform in Europe rose 30% year over year in the first quarter, and bookings in the Asia-Pacific segment increased 17% year over year in the period. Meanwhile, daily active users grew 29% in Europe and 25% in Asia-Pacific.
The business is already posting impressive engagement and bookings growth across its core geographic segments, but Roblox has just started to tap into a major monetization opportunity. There's huge untapped potential for the platform to become a hub that can generate revenue from advertising and other sources.
Thanks to high levels of engagement across its platform, Roblox has the potential to be very attractive to advertisers. The company has just started to roll out its digital ads implementation, and there's a good chance that the new project will evolve into a significant sales generator.
Roblox is seeing strong engagement growth across its platform and remains in the very early stages of capitalizing on a new revenue driver. With the stock still down big from its high, now looks like a good time to build a position in the digital content innovator.
A streaming stock that stands out
Jennifer Saibil: Roku (ROKU -10.29%) became a market darling when sales soared early in the pandemic, and then it tanked as growth decelerated and profits disappeared. But while it's feeling the pressure of inflation, it operates a unique streaming model that positions it for a grand comeback even as the major players in the streaming wars duke it out for subscribers and profits.
Roku has two segments: devices and platform. The device segment covers the various streaming devices it sells, including connected screens and devices that hook up screens to the internet. Every device holder has an account that brings them into the Roku ecosystem. While devices aren't a huge part of total revenue, accounting for about 20%, Roku's operating system (OS) is the top one in the U.S. and gaining traction internationally.
As it onboards new account holders, Roku has new eyeballs for its free channels, and that's where the real opportunity is. Cord-cutting is still a phenomenon, and Roku is claiming new viewers as they steer away from traditional TV and cable. More viewers and viewing hours turns into more advertising dollars. Active accounts increased 16% over last year in the 2023 second quarter, and viewing hours increased 21%. Total revenue increased 11%, with similar increases in each segment.
The challenge right now is that even though advertisers are moving their money over to streaming, they're cutting their budgets due to their own cost-cutting efforts. But Roku is well-positioned to keep up growth as viewers move over, with a model that has years of growth ahead through increased advertising revenue.
In the meantime, Roku stock is 85% off its highs from two years ago, but it's already up 76% so far in 2023 as investors sense opportunity. Now's a great time to buy as it climbs back up.
