Down 50% In 2022, Is Roblox Stock Worth Buying?
March 27 2022 - 2:01PM
Finscreener.org
Roblox Corporation (NYSE:
RBLX) is an America-based video game developing
company that serves customers across the United States, the United
Kingdom, Canada, Europe, China, the Asia-Pacific, and
internationally. The stock rose to fame during the pandemic and is
still considered hot because of its play on the emerging
metaverse.
However, since the end of last
year due to reasons like inflation, rising interest rates, and
others, the stock has been experiencing a steep fall in its
valuation and has lost more than half of its market cap
since its IPO. Roblox stock is down 50% in 2022 and 62% below
all-time highs.
Roblox bets on the metaverse
Metaverse is touted as the future
and many gaming, as well as big tech companies, are trying to bloom
on this platform. The global metaverse market was valued at $107
billion in 2020 and might surpass $750 billion by 2026, indicating
a compound annual growth rate of 37.1%.
Roblox enjoys a first-mover
advantage in the multi-billion metaverse industry, allowing it to
gradually capture a greater market share. Its two-sided network
enables effective communication amongst users, content creators and
brands thereby letting the company efficiently operate one of the
worldU+02019s most successful metaverses. Notably, Roblox has ended
the last quarter of 2021 with a whopping 49.5 million average daily
active users.
Moreover, the company’s long-term
growth is highly dependent on the expansion of its metaverse
ecosystem. For that, it has entered into multiple partnerships over
time with big brands like KeringU+02019s Gucci to launch
Gucci Garden theme rooms. Roblox has
also partnered with Nike (NYSE: NKE)
to set up a virtual showroom called Nikeland and with the NFL to
create a metaverse experience for football fans.
Besides, Roblox is expanding
internationally as well and already has its footprints across 180
countries.
Decrease in user engagement
Previously, Roblox’s revenue was
nowhere close to what it has been generating these days post the
pandemic. The company’s revenue generation literally exploded in
2020 and 2021 and it ended up reporting revenues of $569 million,
$509 million, $454 million, and $387 million in the past four
quarters of 2021. Such an increase in the revenues might be
due to the surge in the company’s Average Bookings per DAU which
came at $15.57, $13.49, $15.41, and $15.48 in the last four
quarters of 2021.
However, the rate of engagement
in the company’s platform is decreasing to some extent as the
economy is reopening and children are returning back to their
schools. As Roblox is too dependent on children under the age of 13
the economic reopening is casting a negative effect on the
platform.
Total engagement hours have
reduced from 11.2 billion hours in the third quarter of 2021 to 10.8
billion hours in the fourth quarter of 2021. Fueled by the decrease
in engagement across lucrative regions such as the US and Canada
there has been a reduction in the growth rate of overall bookings
of the company by 8% quarter over quarter.
Roblox is a growing business that
is now kind of normalizing the unsustainable growth rate it had
attracted previously during the outbreak of the pandemic. The
company’s hold over the metaverse is terrific. But as the metaverse
concept is gaining steady popularity Roblox will also have to face
steep competition with some of the biggest industry giants
like Meta (NASDAQ:
FB) thereby making its
stock quite susceptible to risks.
The stock closed on March 23 at
$50.7. The average investor target on the stock is $71.23 which is
a potential upside of over 40%. It looks like a tempting
buy.
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