Generative artificial intelligence (AI) is a technology capable of bringing advances to many industries from healthcare to finance. But the most immediate opportunity may be in media.
Specifically, generative AI makes it a lot easier for anyone to create content. It's lowering the barriers to entry where creators previously needed to build up a significant skill set.
Where generative AI can be truly transformative in democratizing content creation is in the metaverse. Few people have the requisite knowledge and skills to build immersive and interactive experiences; these usually require a team of specialized individuals. It also takes a long time to build games and environments. Generative AI can speed up that process and expand the number of people who can create.
And Cathie Wood's Ark Invest sees one company as a leader in the space, pushing generative AI forward with the potential to benefit immensely from the opportunities it provides.
The YouTube of metaverse experiences
In a research note from earlier this year, Ark Invest analysts pointed to how other online platforms have enabled anyone with an internet connection to create and distribute content. Alphabet's YouTube, for example, made it possible for anyone with a smartphone to become a video publisher.
The YouTube platform for the metaverse is Roblox (RBLX 0.47%).
And Roblox is investing heavily in generative AI. In a blog post in February, management stated its goal is to "enable every user to be a creator."
At its developer conference last month, it unveiled Roblox Assistant. The AI assistant can perform more repetitive tasks in environment and game creation while allowing creators to focus more on narrative, gameplay, and experience design.
In its demo, Roblox showed how someone could quickly build an environment using Roblox Assistant. It cuts down significantly on the amount of time and skills it takes to get started building a game. It tears down the gates preventing more people from creating on Roblox.
NYSE: RBLX
Key Data Points
Why Roblox is the metaverse platform most likely to benefit
There's one dominant platform for each user-generated media format.
As noted above, YouTube is the platform for long-form user-generated videos. It wasn't the first platform on the internet to offer hosted streaming for your own videos, but it made it as easy as possible to use. As a result, it now generates $30 billion per year in revenue for Alphabet.
Roblox, similarly, has a history of making it easy to develop and monetize games and experiences on its platform. And it has the potential to build upon that lead with generative AI.
In fact, its head start, with 65.5 million active users, gives it a huge advantage. It has more assets, more developer code, and a better understanding of user behavior than most other companies for training a generative AI model.
Having an existing user base creates a strong network effect for Roblox. Developers are attracted to the platform because there's a built-in audience for their games. And that turns the flywheel, attracting more users to the platform because that's where developers are releasing new and interesting games.
With Roblox's efforts to turn users into creators, it could spin that flywheel even faster. As Chief Technology Officer Daniel Sturman said on a podcast interview with Ark's analysts, "The line between a user and creator is becoming increasingly thin." So, more users means more creators, which means more content to bring in more users.
Where do things go from here?
There are a lot of benefits that can accrue to Roblox from the advancements in generative AI it's pushing forward.
In the near term, it can enable more brands and businesses to create experiences on Roblox with less capital. In other words, it can create more advertising opportunities by reducing the overhead necessary. That could be a catalyst for its new advertising partner program.
Over the long run, more user-generated games and experiences should increase gross bookings per user simply by giving them more reasons to spend time (and money) on Roblox. Gross bookings per daily active user (DAU) have trended down since COVID-19 vaccines became widely available in the second quarter of 2021. There are several factors at play, but the company is showing signs of returning to growth in 2023. Meanwhile, its user base has increased 50% since Q2 2021.
The potential for generative AI to turbocharge game creation should help Roblox capitalize on its scale and leverage its operating expenses, leading to a return to profits for the growing platform.
The stock currently trades for about 6 times its gross bookings from the trailing 12 months. It was trading above 10 times bookings around this time last year. At this price, the stock looks like a good value.
Cathie Wood seems to think so. Her team added to its position across three Ark funds in September.
