Co-experience platform developer Roblox (RBLX) is arguably one of the best metaverse plays on the open market today. That stock has been crushed, giving up all of its gains in 2021 and even some.From peak to trough, the stock has lost more than 80% of its value. More recently, interesting gaming stocks have started to pick up steam and are up almost 100% from their June lows.
While daily active user (DAU) growth remains strong and engagement is on the right track, Roblox’s EBITDA margin is not on the right track. The company is investing heavily in the future at the expense of short-term margin attractiveness. I think this is the right move, as the competition in the “co-experience” world could get tougher once the Metaverse is ready in earnest.
Roblox has been a resounding success, producing a very impressive flywheel in its own right. Investing in developer and platform capabilities is required to speed up the flywheel. The metaverse may be years behind. But once it’s ready for the masses, Roblox could face a wave of hungry rivals looking to replicate its success.
In fact, many might tend to think of Roblox as just a video game developer. I consider this company a pioneer. This seems to be a glimpse of what people should expect from the near future metaverse (or whatever we call it).
I’m incredibly bullish on this stock given its cheap valuation and a market likely to see significant growth over the next 10-15 years.
Roblox still in growth mode
Roblox may still be adding users, but growth has slowed significantly in recent quarters. This slowing pace (and negative trajectory for profit margins) may be raising investor expectations for equities as interest rates drive the economy into a potential recession or slowdown.
Still, I think the economic storm clouds are the main cause of Roblox’s downfall. As more users introduce the digital experiences possible in virtual and augmented reality, I think it will be hard to stop co-experience companies as recessions come and go.
In the future, we expect Roblox to invest heavily in developer tools to bring next-level experiences to their users. With a strong balance sheet and more than $800 million in cash, the company may want to pursue acquisitions to boost engagement.
Last year, Roblox acquired gaming chat platform Guilded. This could help strengthen the collaborative experience ecosystem. In fact, Roblox isn’t just about games. We are focused on a much broader market with incredible room for growth.
Roblox has a moat to compete with the meta
Roblox’s moat lies in its developers and users. Such a moat might be difficult for the meta (meta) Despite the heavy investment in the metaverse software, it cannot be penetrated. The metaverse that Meta Platforms sees may be years away, but Roblox has a platform that Meta wants to replicate.
Meta Platforms acquired Crayta, a less popular game development platform than Roblox, just over a year ago. Crayta has a lot of potential, but it may be harder to attract more dedicated Roblox users than many expected.
As digital experiences (concerts, games, hangouts, etc.) grow in popularity, Roblox has the means to reaccelerate its growth. There are many rivals in the race to the Metaverse. But I don’t mean to underestimate Roblox’s ability to innovate into new territory.
Between Meta and Roblox, I use Roblox daily.
Roblox is more than just a game
Roblox shows that the Metaverse (or Omniverse) isn’t just for games. It becomes a place to work and play. In the play category, Roblox showed that digital experiences can be a key factor in attracting viewers who don’t classify themselves as gamers.
With the advent of game streaming and the rapid rise of the mobile gaming market, many have become gamers. Still, it’s the existence factor that makes Roblox’s co-experience approach so compelling.
For younger viewers, Roblox has become a place to hang out with friends. Many analysts might see Roblox as just one he of video games that young users let go of when they become adults.
Roblox has done a great job of attracting older teens and young adults as well. As the platform continues to improve, it’s not too much of a stretch to think that Roblox can grow with a younger user base.
It’s not an easy task, but when you think of Roblox as a place to build experiences, it becomes clear that Roblox isn’t just an immature game that kids throw away when something nice-looking comes along. Graphics are never a source of power!
Wall Street’s view of RBLX
Turning to Wall Street, Roblox has a medium buy consensus rating based on 9 buys, 7 holds, and 2 sells assigned in the last three months. An average RBLX price target of $38.41 implies a potential decline of 22%.
Analyst price targets range from a low of $21.00 per share to a high of $57.00 per share.
Bottom Line – Roblox Has the Most Metaverse Momentum
Roblox stock skyrocketed and crashed. With so much recession risk already ingrained, 13.5x given that Roblox appears to have the most metaverse momentum of all the companies trying to dominate the digital world of the future. I think the sales multiple is a bargain.