There are few forms of entertainment that symbolize childhood more than video games. That's not to say they aren't enjoyed by all ages. When it comes to Roblox (RBLX 1.35%), the age of the user was a topic of conversation when the gaming platform was gaining popularity with younger children. Investors wondered if users would stick around as they got older.
Roblox has proved to be more resilient with older users than early detractors might have thought, and the company continues to grow. Its stock price of about $30 also makes it a great candidate for investors with limited capital. Let's look at why Roblox is a great investment for those with less than $50 to put into the market.
Older users are sticking around
For Roblox, user growth has never been a concern. During the height of the pandemic lockdowns, it saw year-over-year growth of daily active users (DAUs) near 100%. That has trailed off since, but it has been remarkably consistent. Over the past two years, DAU growth has been in the 20% to 30% range every quarter. Considering all the competition for time spent, that's impressive.
But what happens when younger users get older? Fortunately for Roblox, this has trended in a positive direction. In the second quarter of 2020, 44% of its DAUs were over the age of 13. In the second quarter of 2023, these older users accounted for 56% of DAUs. This suggests that the company has retained its users, attracted new older users, or both. Either way, this is positive news.
Keep an eye on bookings
One of the key metrics used by Roblox to measure its performance is bookings. This primarily consists of the sales of the platform's virtual currency, called Robux. Management considers bookings to be a more timely indicator of business trends. They grew 22% year over year in the second quarter of 2023, the second consecutive period of 20%-plus bookings growth.
Bookings are looking especially strong in Europe, the company's second-largest source of bookings after the U.S. and Canada region. They increased by 30% in the second quarter, the fourth consecutive quarter of accelerating year-over-year growth.
Bookings are where the age of the users becomes important. Older users theoretically have more money and can spend it on buying more Robux. From that standpoint, older users are more valuable. This is why keeping and growing these older players matters. Roblox is already seeing evidence of this, with users between the ages of 17 and 25 spending more than other age groups.
Management anticipates that its bookings growth will benefit the bottom line over time. It is guiding for third-quarter bookings to grow faster than its infrastructure expenses, and for bookings in the first quarter of 2024 to outpace its head-count expense. This could help the company move more quickly toward profitability.
Why is Roblox stock a buy?
Roblox has experienced continued growth and is on track to meet its stated projections. The stock currently trades for 7.5 times trailing sales, significantly cheaper than a few years ago, and is within the range of some video game peers. I wouldn't consider the stock to be cheap, but if the expected operating leverage kicks in, it could look undervalued in hindsight.
