2024 has turned out to be a great year for Roblox (RBLX 18.35%) as its stock price rose 25% year to date (as of writing), reaching a level not seen since 2022.
While there is general optimism in the stock market, company-specific reasons remain the biggest drivers of Roblox's solid stock performance. In particular, its sustained financial performance gives investors hope that the momentum could continue for a while.
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Roblox delivered another quarter of solid growth
It has not been easy to be an investor in Roblox. Initially, the company debuted in the stock market during the pandemic, where conditions were almost perfect for the company to operate. Record growth in users, rapid expansion in revenue and bookings, and huge optimism about the future thanks to trends like the metaverse, new post-pandemic behaviors, etc.
Just like almost all technology companies, Roblox subsequently went through a period of correction, both in its business and stock performance. The growth rate declined, and losses expanded, leading to huge net losses. For perspective, bookings went from a peak of 229% growth in the second quarter of 2020 to a negative 4% in the same period two years later.
By then, all that investors could imagine was negative, so much so that some even questioned the viability of Roblox's business model, not without reason. After all, Roblox remained loss-making ($0.9 billion in 2022 and $1.2 billion in 2023) despite generating more than $2 billion in revenue.
Fortunately, the downturn turned out to be temporary rather than permanent. One thing was that it took a few quarters for Roblox to digest the massive gains in users during the pandemic time, which arguably was artificially pulled forward compared to Roblox's historical growth trajectory. Once that was complete, the gaming company quickly got back to growing again.
For instance, bookings have been growing at double digits (and accelerating) since the third quarter of 2022. Besides, daily active users (DAU) continued to grow even during the darkest period, suggesting that Roblox's platform remained highly sticky among its users.
Roblox's result in the third quarter of 2024 further justifies the turnaround story. Revenue surged 29% year over year on the back of a 34% increase in bookings. Operationally, DAU jumped 27% to 88.9 million, and hours engaged grew 29% to 20.7 billion.
In short, Roblox is firing on all cylinders!
NYSE: RBLX
Key Data Points
Roblox aims to become the largest social platform for play
While investors were largely satisfied with Roblox's near-term performance, their main focus is on Roblox's long-term aim of reaching a billion users -- that's more than 10 times its current scale.
The long-term goal might sound far-reaching, but there are some unique advantages that the platform can leverage to achieve its target. Firstly, it relies on the flywheel of an ever-growing gaming content and user base, which reinforces each other over time. To this end, Roblox shares a significant amount of its revenue (25% in the third quarter of 2024) with game developers so that they can continue to create world-class content, which in turn attracts more users and makes them even more successful.
Besides, Roblox's platform has another important element: a social space where people can interact, collaborate, or just hang out. As such, the use cases can extend beyond just gaming to areas like education, virtual events, concerts, etc. That means Roblox's targeted user base can continue to grow as the use cases expand over time.
On top of that, Roblox's platform extends beyond geography, culture, and languages, giving it access to users globally. In fact, more than half of its users (47.5 million) are already in countries outside of its core markets of the U.S., Canada, and Europe. This proportion will likely grow further over time as Roblox grows in emerging markets like India.
In other words, Roblox has the necessary ingredients to become an even more successful platform over time.
What it means for investors
Roblox went through a turbulent time over the last few years to prove the validity of its business model and the sustainability of its growth over the long run.
With that purpose largely behind us, investors are now focusing on how well the company can execute its long-term goal of reaching more than a billion users.
All said, investors with an interest in the metaverse should keep the company on their radar.
