Roblox (RBLX 1.72%) has nearly 100 million daily active users on its gaming platform on average. And many of those users are young school-aged kids who are starting to get into gaming.
There's no need for an expensive console with Roblox; a phone, tablet, or computer will gain you access to the platform. And with its users making the content, there's a wealth of options for users interested in using the platform.
But the company still struggles with profitability and faces big question marks about its long-term viability, especially about whether it can get to breakeven. However, its recent results did give investors reason for optimism. Here's why I'm getting more bullish on the stock in light of how it did in its most recent quarter.
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Roblox's operating loss shrank significantly
A key investor concern with Roblox is its lack of profitability. Without positive earnings numbers, it's difficult to prove that its operations are indeed sustainable. Through the first three months of the year, the company grew its sales by more than 29% to a little over $1 billion.
More importantly was that the business also trimmed its losses. At $254.7 million, its operating loss this past quarter was down from $302.3 million in the prior-year period. While this is still a problem and breakeven may not be on the horizon just yet, that's still a considerable $48 million improvement.
As the company unlocks new opportunities related to advertising, it could pave the way for further improvements on its bottom line. Management recently announced the launch of rewarded video ads, which will give users on its platform in-game benefits for watching a full-screen ad.
Advertising is a huge opportunity for the business that can help get it closer to breakeven, and it's still in the very early stages.
Operating cash flow is also improving
Another positive takeaway from Roblox's recent earnings report is that the business is also generating positive cash flow, even after factoring out stock-based compensation. Over the past three months, operating cash flow totaled $443.9 million, and stock-based compensation totaled $258.9 million.
Excluding stock-based compensation is important because while those expenses are paid out in stock, they are still real expenses for the business. And by adding them back in, investors can get an idea of whether the company would still be generating positive cash flow if those expenses were paid as cash rather than stock, while still excluding other noncash items.
And in Roblox's case, that is true. A year ago, the company's stock-based compensation totaled $240.5 million and was greater than its operating cash flow of $238.9 million.
Is Roblox stock a good buy right now?
Roblox is a business heading in the right direction, and I am more bullish on it in light of the improving earnings numbers. The stock price has enjoyed a strong run-up over the past 12 months, rising by more than 145%, pushing it to a market cap of around $52.3 billion.
It's a bit of an expensive stock to own since it trades at more than 13 times its trailing revenue, and while its losses are coming down a bit, the company still has a long way to go to break even.
However, if you're willing to be patient and hang on, the gaming stock could make for a solid long-term buy given that Roblox is in the early stages of diversifying its revenue streams, and ads could be massive opportunity for the business. There's room for much more growth for the company in the years ahead.
