Investing in Roblox (NYSE: RBLX) has been no tea party in the park. The stock, like a restless spirit, has swung wildly from the highs of $134.72 to the lows of $24.88 since its debut on the public market in 2021. But, oh what a journey it has been since the gloomy depths of 2023, as the stock has clawed its way back above $40 per share. It appears that astute investors might have caught on to something captivating about this stock.
Image source: Getty Images.
Roblox Defies Expectations
The pandemic storm that erupted in 2020 turned into a boon for Roblox. Like a phoenix rising from the ashes, its revenue soared at high-double-digit rates, even tipping into triple digits, much to the delight of investors. Yet, just as quickly, the boom transitioned into an eerie silence as other industries reopened.
By the third quarter of 2022, revenue growth had shrunk to a mere 2%, leaving the bears growling with concern. They feared Roblox’s rapid growth was but a fleeting mirage, a relic from the pandemic. However, the dawn of 2023 banished some of these shadows. Roblox showcased a 26% growth in revenue to $2.8 billion, propelled by a 23% surge in bookings, while enjoying a 24% leap in operating cash flow to $458 million.
The foundation of Roblox’s resilience lies in its operational finesse. Daily active users (DAUs) swelled by 22% to 68.4 million, with engagement hours climbing 22% to a staggering 60 billion. Clearly, Roblox magnetizes new users while ensnaring the loyalty of existing ones.
The specter of Roblox’s strong performance is forecasted to linger in the upcoming quarters, with revenue, bookings, and margins set to bloom in 2024. The company’s guidance paints a picture of revenue reaching $3.3 billion to $3.4 billion, a metamorphosis of at least 18% from 2023.
Roblox’s Luminary Future
Roblox is a shining exemplar of a growth stock. Over the past three years, the quarterly revenue has more than doubled from $310 million in Q4 2020 to $750 million in Q4 2023. While the growth engine stuttered briefly in 2022, the latest performance whispers of a rekindled vigour.
The linchpin of Roblox’s growth saga is its grand ambition to amass over 1 billion DAUs, a far cry from the 70 million in 2023. To realize this vision, Roblox is sowing seeds in its developers’ garden, nurturing them to craft top-tier content on the platform. This, in turn, retains users and lures new souls to the Roblox universe, a cycle of perpetual content expansion and user influx.
With an eye towards broader shores, Roblox is spreading its wings to untapped markets beyond the US and Europe. The harvest is already evident with DAUs sprouting faster in Asia Pacific and other corners of the world compared to the traditional heartlands.
As the user horde swells, Roblox reaps the bounty of increasing commission fees, a key revenue influx. Moreover, avenues to diversify income streams, like subscriptions, advertising, and e-commerce, are on the horizon.
Gazing into the distant horizon, Roblox stands ready to ride the wave of the metaverse’s ascent. While the metaverse’s journey to the mainstream will be long and winding, its potential, as estimated by J.P.Morgan at $1 trillion in annual revenue, is simply too gargantuan to overlook.
Implications for Investors
Roblox’s triumphant saga in 2023, where it showcased a robust and sustainable business model post-pandemic, beckons investors to ponder. With tantalizing hints of continued growth on the horizon, Roblox shines as a star on the investment canvas. As the company navigates the coming years with such vigor, investors would do well to keep a weather eye on this rising titan.