Metaverse economy is currently developing that leads the investor to pay attention to their investment portfolios. Not only the biggest technology companies such as Apple, Microsoft and also Meta Platforms, the smaller entities such as Roblox Corporation are also talking about the metaverse potential in the world.
It is known that Roblox Corporation came public last year amid metaverse hype. Since then, Roblox has started to get some traction with advertisers, making them getting more powerful revenue. The prominent brands are beginning to invest to create experiences on Roblox platform.
Why should you think about adding Roblox to your investment list? Of course, there are at least three reasons why you have to buy Roblox and one reason why you have to sell Roblox. If you are wondering the real facts about it, let’s dive into our post to find the information!
3 Reason Why You Should Buy Roblox Stock
According to some sources, including fool.com and Nasdaq.com, there are three reasons why you should add Roblox to your portfolio:
Reason 1: Huge advertising potential in the metaverse
With more than 47 million daily active users who can interact and play games, Roblox platform can be mentioned as a digital world with metaverse characteristics. The Roblox currency, Robux can be the primary revenue driver for the Roblox company where the players will spend Robux to buy any in-game items or play for paid-games
To buy Robux, the players can use their cash or credit cards, meaning they spend their real money to buy the in-game currency. That’s why the Robux sales in Roblox is the main sector for the company to gain their income.
When the players spend Robux, the transaction is divided into a few parties, including:
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- Roblox just takes under 24% on average
- The rest income going to a combination of the developer, app store such as Apple’s app store or Alphabet’s Google Play, payment processors and infrastructures like server hosting and support
The metaverse can grow to be an entire digital economy. According to GDA Capital, an advisory firm that specializes in digital asset investments, the metaverse’s estimated growth in 2020 was $478 billion and it could grow to $783 billion by 2021.
With advertisers, Roblox has started to get some traction that can be a powerful revenue driver over the long term. Roblox also states that its revenue contributions from advertising, licensing and royalties are immaterial, meaning it might change over time.
For more information, the large brands such as Nike has built NIKELAND, Chipotle Mexican grill had a promotion and Music Star Lil Nas X had a concert experience on Roblox in which it gave out free burritos in a digital restaurant on Halloween.
With more than 47 million daily active users, it already makes Roblox comparable to the Roku channel, the largest ads-based video-on-demand platform in the United States. So, the more Roblox grows, the stronger its platform can be as an advertising business.
Reason 2: Strong cash flows
Even though Roblox invests a lot of money into its platform for infrastructure and servers as well as research and development, but overall, Roblox Corporation continues growing revenue and users, making the company very profitable.
Reportedly, the net income is currently negative, since the Roblox company is spending to fuel growth, but it is already earning a lot of free cash flow (FCF). That means the company has cash available after it invests in its business.
Roblox has generated roughly $599 million in free cash flow from $1.66 billion in revenue over the past 12 months. In other words, the company gains $0.36 of FCF from every revenue dollar that is strong for a company which is still in growth mode. It means that when revenue grows over time, its bottom line can grow quickly once it starts turning a profit.
Reason 3: The stock’s valuation
Shortly after many tech stock prices peaked, the company’s initial public offering was in March 2021. Its strong financials, growth and hype in a hot market made a pretty expensive valuation for investors to swallow. Its shares debuted at just under $70 per share and reached as high as $141, a price-to-sales ratio of more than 24.
It is known that the Roblox stock price has fallen under $60 at some points, an almost 60% drop from its 52-week high. The analysts are calling for 21% revenue growth for 2022, expecting $3.3 billion in revenue, making a forward P/S ratio of just over 10.
Considering its non-explosive growth and a market cap which is already over $30 billion, the stock is a ‘can’t-miss’ bargain at this valuation. However, many people think that the company’s growth could grow at a healthy double-digit percentage pace for years to come. Certainly, the investors have to welcome the stock that continues to fall, but shares are likely buyable here.
1 Reason Why You Sell Roblox Stock
It is different from the reason to buy Roblox Stock that has three reasons at once, there is only 1 reason why you should sell Roblox Stock. What is the reason to sell Roblox Stock? Let’s see it below!
Reason 1: User growth slowing down
Roblox is likely to benefit from the pandemic of Covid-19 where its quarterly user growth was between 40% and 50% year over year in 2019. Well, it increased to as high as 97% year over year in 2020.
However, the users’ growth began to cool in 2021 where the user growth was 79% year over year in the first quarter that is followed by 29% in the second quarter and 31% in the third.
In this case, the user growth is an important metric for Roblox, since it will affect the company’s revenue growth and its appeal to advertisers over the long term. Certainly, the investors will want to see that this picks back up in future quarters. The only one possible way that it can do this is to attract older users to its platform. If the user’s growth remains slow, it is expected that it could spell trouble for investors.
AUTHOR BIO
On my daily job, I am a software engineer, programmer & computer technician. My passion is assembling PC hardware, studying Operating System and all things related to computers technology. I also love to make short films for YouTube as a producer. More at about me…
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