Top Metaverse Stocks: Should You Buy Roblox Stock?
There’s been plenty of talk about the metaverse recently. In the past few months, it seems as if every technology company out there has launched a plan to help create the metaverse. Some companies, like Facebook (I mean “Meta”), are even making the metaverse their sole focus. As investors, there is a huge advantage in being the first to invest in “the next big thing.” This is why so many investors are clamoring to buy Roblox (NYSE: RBLX) stock.
For most companies, the metaverse is still a pipe dream. It’s a long-term goal that they’re working towards. However, there is no telling when they might reach it. This isn’t the case for Roblox though. In fact, Roblox has is already offering virtual events where you can buy virtual merchandise. Last quarter, Roblox hosted a digital Twenty One Pilots concert. This concert generated 1 million hours of engagement from users in 160 countries.
Roblox certainly seems to be at the forefront of creating the metaverse. This is partly why it was named one of the best metaverse stocks to buy.
With that said, “the metaverse” also kind of seems like the latest technology buzzword. Since it doesn’t technically exist yet, it’s easy to scratch your head and wonder what the hype is about. Remember Google Glass, 3D TV, or the Microsoft Kinect? All of these products generated tons of buzz but barely even exist today.
So, should you buy into the metaverse hype and buy Roblox stock? Or is it worth waiting a few more quarters before making a decision? Let’s find out.
Should I Buy Roblox Stock?
Before answering this question, let’s talk about what Roblox actually does.
Roblox is an online game platform and game creation system. It wants to bring the world together through gaming. On Roblox, developers can sign up to create video games. Roblox users can then play each other’s games. This is a key piece of Roblox’s platform. It does not actually create its games in-house. Instead, it lets developers design their own and pays them for doing so. So far, developers have earned about $761 million from creating games. The Roblox platform currently boasts 9.5 million developers and 24 million experiences.
If you are just hearing about Roblox, that’s probably because it just went public in 2021. However, it has actually been creating digital games since 2006. Roblox started experiencing increased growth during the COVID-19 pandemic.
Roblox games are free to play. However, users have the option to make in-game purchases with a virtual currency called “Robux”. Roblox currently has about 164 million monthly users. It is used by about half of all children under 16 in the United States.
So far, these stats are impressive. However, it’s not enough to justify a decision to buy Roblox stock. Before deciding, let’s see if Roblox is actually profitable.
Does It Make Money?
Assessing Roblox’s business is interesting because it’s very much a tale of two cities. On one hand, its revenue has grown over 100% year-over-year (YoY) for 5 quarters in a row. In Q3 2021, it posted revenue of $509.34 million. This was a 102.19% increase from Q2, where it posted $454.1 million. This type of revenue increase was partially expected during 2020 due to the pandemic. Since people were stuck at home with little else to do, it made sense that Roblox saw increased engagement. The fact that this growth has continued into 2021 is impressive.
Additionally, a 100% increase in revenue is extremely aggressive growth on a yearly basis. To do this consistently on a quarterly basis is really astounding.
However, Roblox also has yet to turn a profit. In fact, its net income has been decreasing every year. In 2020, Roblox posted a net loss of $253.25 million. This was an increase of 256.86% from 2019, when it posted a net loss of just $70.97 million. Since Roblox just went public in 2021, this is pretty much all the information that’s available. It would be very interesting to see how these numbers have changed dating back to the 2010s.
Roblox stock debuted in early 2021 at approximately $70/share. It is up about 66% since then and is currently hovering around $120/share.
Roblox recently released its Q3 earnings report. There was lots of information in here that will help you determine whether or not to buy Roblox stock.
To start, Roblox experienced a 28% increase in “hours engaged”. This is the amount of time that gamers spent on Roblox. For a gaming company, engagement is generally a crucial metric. Roblox also reported 47.3 million daily active users. This was a 31% increase when compared to 2020 and a 2.6X increase from 2019. In general, the management was very pleased with the numbers that they generated in Q3.
So should you buy Roblox stock? Let’s take a look at a positive view as well as a pessimistic view.
Roblox Stock: Positive Outlook
Your decision to not buy or buy Roblox stock is going to come down to your opinion on the metaverse. For me, I feel as though the metaverse is going to be a necessary evil. It’s something that nobody really asked for but we’re going to get anyway. One quote that helped change my mind was during Mark Zuckerberg’s metaverse presentation. Mark said, “it’s not about spending more time on the internet. It’s about improving the time that you’re already spending.”
For me, I was envisioning the metaverse as a Matrix-style future where everyone is plugged in 24/7. This makes me cringe and roll my eyes. However, now I’m envisioning the metaverse as relatively similar to the modern internet…just more immersive. Instead of looking at a computer screen, I could put on a headset and sit in a room with people on my Zoom call. From the perspective of “an improved internet” and not “living your life digitally”, the metaverse has grown on me.
This is why I think Roblox is so exciting. Roblox seems to be one of the few companies that is already in the process of building digital worlds. So far, it has 24 million experiences and I’d wager that this number is going to skyrocket in the next few months and years. Roblox seems to be laying the foundation for what the metaverse ultimately becomes (whatever that may be).
The other statistic that shocked me is that half of all kids under 16 use Roblox. Even though older generations may be hesitant about the metaverse, younger generations are clearly diving right in.
Finally, let’s take a look at a negative outlook to buying Roblox stock.
Roblox Stock: Negative Outlook
The elephant in the room is that the metaverse doesn’t exist yet. This means that a company like Roblox is mainly riding high on hype alone. Sure, it has consistently made money so far. But will this continue if consumers reject the metaverse? VR headsets are also expensive. What if the bulk of consumers end up getting priced out of participating?
Another big factor to consider when deciding whether or not to buy Roblox stock is what happens when Roblox’s competitors get into the game. What happens when Microsoft starts deploying money to design digital worlds? Or Google? Or Meta? Roblox has had a significant head start so far but that doesn’t mean that it will maintain its edge. In 2020, Roblox pulled in just under $1 billion in revenue. In the same year, Microsoft did $143 billion. If other major technology companies decide to start building digital worlds, Roblox could quickly go from the frontrunner to an afterthought.
Additionally, Roblox recently experienced a three-day outage around Halloween. Three days is a really long time for a site to be down in today’s day and age. In fact, Facebook went down for about 6 hours recently and it generated headlines. Roblox has not fully released what exactly caused the outage. However, this could be a sign that Roblox’s platform still needs some work.
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I hope that you’ve found this article valuable when it comes to learning whether you should buy Roblox stock. As usual, all investment decisions should be based on your own due diligence and risk tolerance.
About Teddy Stavetski
A University of Miami grad, Teddy studied marketing and finance while also playing four years on the football team. He’s always had a passion for business and used his experience from a few personal projects to become one of the top-rated business writers on Fiverr.com. When he’s not hammering words onto paper, you can find him hammering notes on the piano or traveling to some place random.