Gaming platform Roblox (RBLX 1.35%) has been an incredible growth story in recent years. There are over 71 million daily active users (DAUs) and about 16 million paying members. Roblox users spent 60 billion hours on the platform last year, and the company has done a fantastic job of monetizing its experiences.
Despite the incredible growth, Roblox could still be in the early chapters of its growth story. Management has big plans for the business, and it could be a major beneficiary of one of the most promising technology trends in the market right now.
Why could Roblox be a once-in-a-generation opportunity?
Metaverse technology is still in its relative infancy. The global metaverse industry is just starting to gain serious traction. According to research firm Markets and Markets, the global metaverse market was about $84 billion in size in 2023 and is expected to grow exponentially to more than $1.3 trillion by 2023.
Roblox has a big first-mover advantage. It is arguably the closest thing we have to a true metaverse gaming experience in the industry today. And as wearable technology evolves and its adoption continues to grow, Roblox should get some incredible tailwinds.
Even with its large scale, Roblox continues to grow rapidly. In the fourth quarter, the company's revenue grew by 30% year over year, and margin continues to move in the right direction. Operating cash flow grew by 20% and for the full year, and while the business isn't profitable on a net income basis yet, a clear path to profitability is starting to emerge.
Massive long-term potential
Management has big goals for the business. While 71.5 million DAUs may sound like a lot, and it is, Roblox's leaders believe they can scale the platform to 1 billion over the long run. The platform continues to launch on new devices -- for example, Roblox just became available on Sony PlayStation and Meta Quest in the fourth quarter -- and this growth could help boost the user base in the near term.
Not only does Roblox plan to grow its user base roughly 14 times from the current level, but there are also other potential catalysts for top- and bottom-line growth.
For one thing, Roblox is doing an excellent job of finding and implementing new ways to monetize its users. To date, most of Roblox's revenue comes from the sale of Robux, its virtual currency for in-game purchases, but it has also started to sell advertising on its platform, creating a fast-growing and high-margin revenue stream. The company has just started to roll out video ads, and there are tremendous opportunities for immersive advertising as the platform and its related technologies evolve. Plus, Roblox is planning to launch capabilities for its content creators to sell physical items through the platform, which could open an entirely new revenue stream.
The bottom line
Roblox has established an excellent track record of growth and is starting to show investors a clear path to profitability. The results so far have been extremely impressive, but we could still be seeing just a tiny fraction of Roblox's long-term potential. As more immersive devices roll out from manufacturers from Apple and Meta Platforms, among others, and Roblox's user base and monetization continue to improve, Roblox could be a massive winner.
Of course, there's a lot that needs to go right for Roblox to reach its billion-user target and become a dominant experiential platform. This isn't likely to be a low-volatility or low-risk investment. But if the company can execute on its growth strategy, this could be a generational wealth creator for patient investors.
