Shares of Roblox (RBLX +0.64%) have more than doubled year to date. These returns were supported by stellar growth on the platform, as daily users surged 41% year over year in the second quarter.
The growth in the quarter was largely driven by the release of one game that went viral. Grow a Garden released in March and gained more than 20 million concurrent players during the quarter.
Typically, you don't want to make an investment in an entertainment company on the success of one hit. But the success of Grow a Garden is, indeed, a great reason to invest in this company, because it shows the power of Roblox's growth strategy.
Here's why investors might want to consider this growth stock for their portfolios.
Roblox is building a powerful growth flywheel
Grow a Garden took on a life of its own. Probably the best metric that captures the effect it had on Roblox's second-quarter growth is the total hours spent on the platform. This totaled 27.4 billion hours, a year-over-year increase of 58%. This is close to the hours spent on other top entertainment platforms like Roku.
The success of Grow a Garden isn't a fluke. During the company's Q2 earnings call, investors got insight into management's strategy. Roblox has made it a priority to invest in artificial intelligence (AI) to automate the content creation process to help developers speed up the release of new experiences. The company has also focused on continuing to reward creators for their work, which drove a 52% year-over-year increase in developer exchange fees.
NYSE: RBLX
Key Data Points
The idea here is to create a growth flywheel. AI makes the content creation process faster, which ultimately leads to more frequent releases on the platform. Growing developer exchange fees create incentive for quality content creation, and, of course, more releases raise the odds that another viral hit will emerge and drive more growth for the platform.
"We've been creating these conditions for viral content," CEO David Baszucki said on the Q2 earnings call. He noted how one popular release can spill over to the rest of the platform. For example, more than 75% of the users who played Grow a Garden also spent time with at least one other experience on the same day.
The end result of more players spending time on the platform was a 51% year-over-year increase in bookings last quarter. Based on Baszucki's comment, Grow a Garden wasn't a one-off, but a deliberate strategy to release more hits and ultimately drive the growth that rewards shareholders. Investors should expect more of this in the coming years.
