Roblox Stock Forecast: Is RBLX a Buy?

Written by Sean GraytokUpdated: 8th May 2022
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This Roblox Stock Forecast will evaluate the investment potential of RBLX going forward. 

Roblox Stock Forecast: Background

According to the company, “Roblox is a global platform where millions of people gather together every day to imagine, create, and share experiences with each other in immersive, user-generated 3D worlds.”

Roblox itself is not a video game; it is a place where people play games made by other developers. Roblox users have published over 20 million games on the platform.

Roblox makes money when users buy and spend Robux (the platform’s native currency) on aesthetic items in Roblox games.

The developers who created the game receive a portion of these transactions — which there are many.

Over half of U.S. kids under age 16 played Roblox in 2020.

Roblox Stock Forecast: Investment Potential

#1. Betting on the Creator Economy

Roblox leverages the creator economy better than most social media platforms. It incentives quality “supply” by sharing profits directly with its creators.

This structure has resulted in a strong developer community, which further enriches the user experience on the platform.

The better the game, the more time Roblox users will spend playing it. The more time spent on a specific game, the more the developer earns.

This business model taps into increasingly popular decentralization themes that are popping up in other markets, from hospitality (Airbnb) to e-commerce (Shopify) to Bitcoin.

#2. Young Users

Roblox users are young — only 15% of users are above the age of 25.

These users spend an average of 2.6 hours per day on the platform.

We expect user spending to increase as the user base’s income increases with age.

Some might argue that an aging user base is bearish as users might “outgrow” the platform. We don’t subscribe to this thinking.

We believe an increase in discretionary income will outweigh the downside of the small portion of users that stop playing as their free time decreases.

#3. Advertising Opportunities

As pointed out by John Ballardfrom The Motley Fool, Roblox has turned on the advertising machine and partnered with Netflix, Disney, and Warner Brothers.

These companies are promoting branded content within games, similar to companies and brands that advertise in Fortnite.

Where there are eyeballs, there are advertising dollars, but few companies have Roblox’s user demographic.

Roblox is uniquely positioned to target a demographic that is traditionally difficult to reach. Advertisers are willing to spend large amounts of money to get their products in front of young users to create life-long customers.

#4. Virtual Goods Market

Video game innovation is typically ahead of the curve. Keep an eye on video game developers if you’re interested in the next big breakthrough in tech.

Virtual goods were the industry’s latest success. A small portion of users are willing to spend enormous amounts of money on scarce products and services within a virtual world.

While GPUs from Nvidiaare expensive, these virtual goods scale better than their physical counterparts, which results in a higher-margin business model.

Ok, back to Roblox — users spend the platform’s native currency, Roblox, to buy clothing accessories, emotes, and other upgrades for their avatars.

This is another strategy the video game industry pioneered — launch a freemium model and then offer in-game purchases.

In 2020, Roblox did $1.9 billion in bookings, equating to an average of $58 per daily active user for the year. This represents a 40% increase year-over-year.

Roblox Stock Forecast: Economic Moat

We believe the following differentiates Roblox from its competition:

Decentralized Creative Updates + Skin-in-the-Game Developers

Roblox is less vulnerable to disrupter games because of its decentralized network of developers.

Traditional gaming companies are centralized and therefore more susceptible to blind spots, making them more likely to miss the next big in gaming.

Roblox’s platform fosters free-market competition within its merit-based structure.

There are thousands of creators cooperating and competing to pull forward growth. We believe their asynchronous iterations on what works and what doesn’t will outpace centralized game developers.

These iterations unfold instantaneously in a free market where successful developers are incentivized to stay on the Roblox platform.

Roblox’s new subscription service, Roblox Premium, shares a portion of the subscription fee based on the time users spend with their content.

Like most things that are left to compete freely, the majority of resources and success will aggregate to the few.

This suggests that there will be a higher retention rate for developers of the highest caliber.

Roblox Stock Forecast & Analysis: 

Roblox reported Q4 earnings on February 15, 2022. Let’s see why the stock got crushed after the call:

  • Revenue (bookings): $770 million vs $772 million expected
  • Loss per share: 25 cents vs 13 cents expected 
  • Daily Active Users: 49.5 million, up 33% year-over-year

Shares fell more than 11% after missing expectations on both the top and bottom lines. 

Roblox stock continued to fall in the next day of trading, closing down more than 26% and setting a new 52-week low. 

Roblox Stock Forecast: The Competition

Roblox has set the video game industry on fire, and the competition has taken notice. Here are Roblox’s top competitors:

  • Epic Games
  • Unity Software (U)
  • Take-Two Interactive (TTWO)
  • Microsoft (MSFT)
  • Mojang
  • FlowPlay

Roblox’s engine is more user-friendly than the Epic Games and Unity Software platforms.

While this results in wider adoption for Roblox, more advanced developers and coders may spend their time with Epic Games or Unity.

Roblox Stock Forecast: The Risks

#1. Overvalued

Roblox has a price-to-sales ratio of 42x — the engine is running a bit hot. Investors typically pay a premium to own the “top company” in high-growth sectors, such as CrowdStrike in cybersecurity and Square in fintech.

Unity Software’s PS ratio is currently 27x, down from 50x at its December highs for comparison amongst game developers.

Roblox has only been a public company for about a year, and investors will allow it to be unprofitable for quite some time, but not forever.

#2. Robux Accounting FUD

Roblox was forced by the SEC to adjust its financial reporting. This was the second time that Roblox had to delay its $41 billion IPO.

The SEC wanted Roblox to be more specific and recognize its revenue from Robux differently, causing the company to alter its accounting practices.

CEO David Baszucki said that the SEC’s requested changes will actually cause the company’s revenue to increase.

So why is this in the bearish section for Roblox stock?

The SEC might one day have more questions about the sale of virtual goods on the platform.

Fear, uncertainty, and doubt (FUD) headlines that are typically associated with crypto-Ike assets could send RBLX spiraling, regardless of the validity of the concerns.

Roblox Stock Allocation in Your Portfolio

This section intends to help you decide how much Roblox stock to buy if any.

Your conviction in RBLX will determine your allocation — hopefully, these questions get the ball rolling:

  • Will Roblox’s current user base “outgrow” the platform?
  • Is a gaming ETF a better investment?
  • Will the next generation of gamers and developers use Roblox?
  • Can Roblox successfully innovate and identify the next big thing in gaming (because there’s always a next big thing in gaming)?
  • Can Roblox defend its market share from Epic Games and Unity Software?
  • Will bookings per DAUs fall as the economy reopens following the pandemic?

Roblox Stock Forecast: FAQs

Is Roblox Stock overvalued?

Some investors believe Roblox is overvalued given its high price-to-sales ratio relative to other companies in the video game industry. The threat of rising interest rates might cause RBLX and other high-growth companies to fall.

Is Roblox Stock a buy, sell, or hold?

Roblox is a buy, sell, or hold depending on your investing goals and time horizons. People buying Roblox stock probably have a higher risk tolerance than the average investor.

Bottom Line: Roblox Stock Forecast

Roblox is a fascinating company that merges the physical and digital worlds. Expect the company to continue to create new technology and business strategies that seep into society at large.

Keep Reading:

This article is for informational purposes only, and it is not intended to be investment advice. Read our editorial guidelines and public equities research methodology to learn more about how we researched Roblox stock.

Sean Graytok
Sean Graytok

Sean Graytok is our Co-Founder and leading expert in investing and financial management. His work has been cited in leading industry publications, such as InvestorPlace and Business Insider. Sean is interested in the people and technologies that are improving the world.