It's been off to the races for Roblox (RBLX) stock over these past few weeks, with the stock blasting off over 60% from its early-November lows. Undoubtedly, investors are really excited about the metaverse, which, while still abstract to many, holds immense potential. Despite the recent run in RBLX shares, I am bullish, as the longer-term growth prospects of this online entertainment platform may still be underestimated.
Prepping for the Metaverse
The Metaverse race is on, and Roblox is ready to get firms up to speed.
Meta Platforms (FB) is ready for its ticker change (from FB to MVRS), and it's hard to ignore the theme of the metaverse, given its immense potential to disrupt traditional tech markets. From gaming to work and even just hanging out, there seems to be a race to the new realm, which may very well be the next stop after smartphones or even the Internet as we know it today.
Even before Facebook decided to change its name to Meta, focusing its efforts on the metaverse, with sizeable R&D investments, Roblox was arguably the king of the metaverse.
When many think of Roblox, they think of a game or app that their child plays across various devices. Roblox is much more than just a game aimed at younger audiences, however. In many ways, it's a platform that helps creators build worlds in its part of the metaverse. Arguably, Roblox has a head start over the many firms engaging in the metaverse race, including Meta Platforms (or Facebook, as many of us still call it).
Building Nike's Digital World
Even sneaker giant Nike (NKE) doesn't want to be caught flat-footed, as everybody tries to punch a ticket into the next digital frontier of consumer tech. The company pulled back the curtain on its own Roblox world, named NIKELAND. The digital realm allows players to dawn Nike products on their avatars. Indeed, in-game merchandise and digital goods are nothing new. That said, an entire world devoted to all things Nike definitely seems to take the concept of digital goods to another level.
With NFTs (Non-Fungible Tokens) picking up traction, Nike certainly has an opportunity to build upon its brand in digital worlds, with a wide range of digital goods for sale in the Roblox world. Now, NIKELAND may seem like some sort of fad, and it may very well be. On the flip side, Nike may also be getting in early on what could be one of the most profound technological shifts since the Internet went mainstream in the 1990s.
I think many firms with brand appeal will choose to follow in Nike's footsteps, with digital worlds of their own. Roblox makes it incredibly easy.
In any case, the race is on, and Roblox may very well be a marketing "must-have" for all of tomorrow's major businesses, just as social-media pages are now pretty much obligatory.
What About Roblox Valuation?
There's a lot to love about Roblox, with maybe the exception of the valuation. At 41 times sales, the stock is undeniably expensive. Then again, it might well deserve to be expensive, given its dominance in one of the hottest tech trends of the decade.
The company's recent third-quarter results were remarkably strong, with daily active user (DAU) growth surging 31% year over year. Moreover, engagement rose steeply, by 28%.
Advertisers and big brands such as Nike are on alert. The metaverse is coming, and Roblox has deep enough pockets to grow alongside its userbase. For that reason, a 40 times sales multiple isn't as expensive as you'd think.
Although I'd much rather buy the name on a pullback, the stock seems fairly valued here, even after the bounce. The fundamentals support the recent pop, and it will be hard to stop Roblox in its tracks, even if the broader tech sector begins to fold over the next year.
Wall Street's Take
According to TipRanks’ consensus analyst rating, RBLX stock comes in as a Buy. Out of 9 analyst ratings, there are 7 Buy recommendations, 1 Hold recommendation and 1 Sell recommendation.
As for price targets, the average Roblox price target is $114.78, implying a downside of 6.43%. Analyst price targets range from a low of $70.00 per share to a high of $150.00 per share.
Disclosure: Joey Frenette doesn't own shares of any mentioned companies at the time of publication.
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