While many high growth stocks have entered into bear market territory in recent weeks, Roblox (NYSE:RBLX) is a great example of one that is trying to buck the trend. After beating expectations with strong earnings results in the first report since the company went public back in March, investors should be paying close attention to what the stock does in the coming weeks.
As a company that is disrupting a growing industry and establishing itself as a leader in its respective niche, Roblox could be the type of stock that turns into a huge winner in the long run. Investors that are looking for exposure to video games and social media should also be intrigued with this company's platform. It's safe to say that Roblox stock potentially has the makings of a long-term winner, and here are 3 reasons why.
1. Changing the Way Video Games Are Played
Sometimes, you can get the best investment ideas just by paying attention to your everyday surroundings. Over the past few months, I've noticed that quite a few of my friends with children have mentioned their kids are obsessed with a new video game platform called Roblox. Their children just can't wait to get home and play each day and won't spend any time on other games. These parents also discussed how much money they are regularly giving their children to spend on the company's in-game purchases, which was even more intriguing. After doing some research on the company and learning about why it’s unique, it became clear that this is a stock with heaps of long-term potential.
Roblox is a technology company that offers a gaming app for kids powered by user-generated content. It is essentially an entire universe of 3D-generated worlds where people can play together and socialize. What’s unique about this company is that all of the games on the platform are made by its users. The company wants to build a human co-experience platform that enables shared experiences among its millions of users. It’s also worth mentioning that anyone, even children, can make boatloads of money on the platform. Roblox and its games are free to join, but kids buy and spend a virtual currency called Robux to enhance their experience. It’s a unique take on social gaming that is changing the way that video games are played, which is a big reason why the stock is worth monitoring.
2. User Base Growing Fast
Roblox is a company that trades at a premium valuation, but it seems that investors are alright with that given how quickly the company’s user base is growing. In the company’s Q1 earnings results, Roblox saw Average Daily Active Users (DAUs) increase by 79% year-over-year which was largely driven by 87% DUA growth outside of the U.S. and Canada. This is important because it tells investors that the company is attracting an international audience and that Roblox is still a big hit even after many kids have gone back to the classroom.
DAU is a valuable metric for these types of businesses because it offers insight into how “sticky” a tech company’s platform or service is. Another interesting thing to note from the report is that Hours Engaged were 9.7 billion in the quarter, an increase of 98% year-over-year. The company also saw 111% growth in DAUs over the age of 13, which confirms that the platform is attracting older users and is a great sign that this company might have truly created something special.
3. Long-Term Trends Still Intact
One of the big concerns about Roblox after it went public was whether or not it would still be able to grow in a post-COVID world. If the company’s Q1 earnings report is any indication, those concerns have not come to fruition. Keep in mind that many of the long-term trends that could turn this company into a long-term winner are still intact. The gaming industry isn’t going anywhere anytime soon, and the fact that Roblox offers a safe and entertaining way for young people to interact with their friends is part of what makes this a company with massive potential.
There’s also the trend of increasing connectivity thanks to the rollout of 5G that could make Roblox accessible to more people all over the world. Finally, the fact that entertainment and social networks have become intertwined plays perfectly into this company’s business model. While the stock is certainly not cheap and the company has yet to report a profit, Roblox has all of the ingredients to become a long-term winner and is a great stock to watch going forward.