Gaming metaverse for young gamers, Roblox Corporation (RBLX), recently saw its stock hit an all-time low. This came after the stock registered a strong surge of momentum en route to its all-time highs in November. But, we knew the spike was not sustainable and had to be digested afterwards. The recent correction in growth stocks provided the perfect opportunity for sellers to burst its bubble and sent RBLX stock to its lowest levels since listing on March 21.
Consensus price targets were also revised lower, reflecting multiple cuts on growth stocks. Additionally, its China metaverse initiative also hit a snag in January, as its partnership with Tencent (OTCPK:TCEHY) appears to have been put on hold.
Additionally, he was also touched by a recent report from The Bear Cave, discussing the issues surrounding child pornography and sexual grooming on the platform. Although Roblox attempted fix the problem quickly, the damage is done.
Nonetheless, we believe the Roblox platform remains a critical entry point for the multi-trillion dollar metaverse opportunity. We’ve also covered its underlying thesis and key financial metrics in a previous article.
We explain why investors can now seize the opportunity of recent pessimism and add RBLX stock.
In-game leadership and user-generated content are Roblox’s main competitive advantage
VP of Metaverse Content at Meta Platforms (FB), Jason Rubin, pointed out in a recent (edited) talk:
Gaming is definitely a central part of the metaverse. The game created the game engine, right? For a long time, the game engine was the only major tool for real-time 3D graphics. Obviously, there was simulation and other things that universities were doing, but for consumers, it was mainly gaming. People like to play. We were born children and we love to play. We never give it up. Thus, the game becomes a great way to get people to spend a lot of time together.. And it gives people a way to build an identity system and do other things and invest in things together. And then I think adjacencies start forming because the people are there and the possibilities are there. (VentureBeat)
Roblox is arguably the biggest user-generated gaming platform with over 220 million monthly active users (MAUs) (as of October 2021 according to R-Track) and nearly 50 million daily active users (DAU). While Epic Games has 194 million users on PC, its December MAU peaked at 62 million, well below Roblox’s numbers. Therefore, Roblox is undoubtedly closer than its metaverse gaming rival Epic to hitting its proverbial target of 1B users.
Additionally, Roblox continues to top the global mobile gaming charts by MAU, downloads, and revenue. Data from App Annie confirmed that Roblox was MAU’s #3 gaming platform in the AMER region in 2021. Detection Tower ranked Roblox as #5 in overall downloads and #3 by App Store downloads in December 2021. Additionally, it noted Roblox Ranked 3rd in Overall Revenue in the same month. Therefore, we want to impress on our readers that Roblox is a massive global platform that is far from falling over the cliff. It may have been listed for less than a year, but it’s built its gaming metaverse experiences over the past seventeen years. Roblox CEO David Baszucki, aka Builderman, pointed out:
When Erik Cassel and I launched Roblox, we envisioned a new category of human co-experience where people could play, learn, and work together in digital worlds. Seventeen years later, Roblox is becoming more and more an integral part of people’s lives. With tens of millions of daily active users and billions of hours of monthly engagement, we are getting closer to our mission to connect a billion people on our platform. (Roblox)
Additionally, in January, Roblox shared a range of significant data points that showed the company had made tremendous progress in building its creator ecosystem. Readers should note that the core of Roblox’s incredible leadership is the strength of its UGC platform. We believe that UGC is the basis of the experiences in virtual worlds that we would have in the metaverse. Therefore, Roblox remains well ahead in this aspect, given its UGC leadership.
Not only is its developer ecosystem very robust, but it is also geographically diverse, spanning 170 countries. Most Developers come from the United States, Brazil, Russia, the Philippines and the United Kingdom. Therefore, Roblox has a global ecosystem of creators serving experiences (as Roblox calls it) to a global community.
Notably, the company pointed out that its ecosystem of creators has continued to grow rapidly over the past year. Roblox Highlighted (Edited):
This community has already become a driving force in creating a more inclusive metaverse, and it’s amazing to see a triple digit percentage increase year over year the number of new creators who have used our free Roblox Studio immersive creation engine for the first time. The number of female creators using Roblox Studio for the first time increased by 353% year-over-year, compared to a 323% growth for new male creators. (Roblox)
Roblox is investing heavily in the metaverse
Even though Roblox has built its metatarsal experiences over the past seventeen years, it’s not resting on its laurels. The company continued to improve its infrastructure and technology while attracting the most recognizable fashion, sports brands and musicians to its platform. It included “Gucci (OTCPK:PPRUF), Nike (NKE) and Vans, who took their first steps into digital experiences with Roblox. Similarly, artists such as KSI, Tai Verdes, Twenty One Pilots and Zara Larsson brought their performances and music directly to fans in immersive and interactive experiences.” Therefore, these forays would provide Roblox with huge monetization opportunities beyond its regular gaming experiences.
Additionally, the company has also actively recruited top talent for onboarding. As a result, he will also pay top dollar. For example, Insider reported that Roblox added the term “metaverse” to all of its roles open for hire. High-level employees can also command more than $400,000 in base salary. Notably, these are all positions to help drive the company forward in its metaverse strategy; as CTO Daniel Sturman points out, “all roles are geared towards enabling metaverse experiences.”
Therefore, we believe that Roblox remains solidly positioned to leverage its leadership in the gaming metaverse to invest more to solidify its lead against its major rivals.
RBLX Stock is Buy Now with Caution
Readers can refer to the chart above indicating that the November bullish trap was digested from the sharp correction that took it from all-time highs to all-time lows. But, we must stress that the market needs to dissipate the momentum spike for RBLX stock to rally. Such spikes are never healthy for any stock, and we had plenty of spikes from many growth stocks in November/December that were also digested. As market makers slumped RBLX stock to an all-time low, it also gave the stock a chance to stage its next rally.
But our caveat concerns the recent report from The Bear Cave. The details have been quite troubling, although this is not the first time such concerns have surfaced. We believe that management will do their best to eradicate such harmful content and creators over time. However, it is still important for investors to watch these developments closely.
As a result, we reiterate our buy rating on RBLX shares.