One of the hottest gaming stocks to own this year has been Roblox (RBLX 1.16%). The company's gaming platform is easy for kids to use and has 40 million games, providing users with a wide range of entertainment options. On average, there are also close to 100 million daily active users on Roblox.
The stock has been on fire since early April, with its year-to-date returns now sitting at around 80% (as of June 30). It's trading near its 52-week high, and it has a market cap of more than $70 billion. With a high valuation and the stock doing so well, is it too late to invest in Roblox right now, or could there still be more gains ahead for investors who buy the stock today?
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Roblox has plenty of growth opportunities to tap into
Roblox has a popular gaming platform that appeals to young kids. The vast majority of the revenue the company generates is from the sale of its virtual currency, Robux, which allows users to purchase in-game items and experiences. While that has enabled the business to grow its sales significantly over the years and has now brought in $3.8 billion in revenue over the trailing 12 months, Roblox is still only scratching the surface of its longer-term potential.
One way the gaming company can grow its top line even further is through advertising, and offering companies unique ways to reach users through games. This can be a tricky avenue to navigate, given that most of its users are under the age of 18, but it's a relatively untapped opportunity for the business. Earlier this year, it announced rewarded video ads, where users can choose to watch 30-second video ads in exchange for receiving in-game benefits.
The company has also been allowing creators to make games targeting older, more mature audiences. Not only can that help grow its user base, it also means it'll be easier to advertise to a wider range of demographics, which is appealing to more businesses.
The company is making progress toward profitability
A big challenge for Roblox is staying out of the red. In its most recent quarter, which ended on March 31, the company's net loss totaled $215 million, on revenue totaling just over $1 billion. The good news is that it's making some progress in the right direction. From a cash flow point of view, there is even better news: its quarterly operating cash flow for the period totaled $444 million, which was close to double the $239 million it brought in over the same period last year.
By strengthening its financials while also expanding its growth opportunities, Roblox will become a more appealing stock to more growth investors in the process. Smaller losses and improved cash flow can make it a less risky investment to own.
Should you buy Roblox stock right now?
Roblox is still in its early growth days, which is why I don't think the stock is anywhere near hitting a peak. With many young users on its platform, there's the potential for them to become life-long customers through the company's immensely diverse games. Even though there are tens of millions of games already, that number can get much bigger, especially as developers make games serving broader audiences.
Plus, a big advantage Roblox has over other gaming companies is that its users can also make games on its platform themselves. This means that it doesn't have to spend heavily on producing and developing games.
Although the stock has been red-hot in recent months, it's by no means too late to invest in Roblox. This can be a great growth stock to buy and hold for years. Roblox possesses a lot of upside over the long haul, as its business continues to evolve and diversify.
