It’s been a troubling opening to 2022 for virtually every tech-related industry in terms of stock market performance. Even as the prospect of the metaverse continues to capture the imagination of consumers and enterprises alike, stocks like Roblox (RBLX) have struggled to generate momentum. Now, as RBLX embarks on its strongest period of growth since the beginning of the year, we have every indication that the metaverse still has the power to capture the imagination of investors.
Firstly, let’s deal with the caveats. Yes, Roblox is still carrying a heavy loss since the beginning of 2022, and yes, wider market volatility means that any signs of a price rally should be taken with a pinch of salt for the time being. At the time of writing, RBLX is sitting at more than 60% below its 2022 opening price of $98.81. By early May, the stock had slid 76.5% below its year opening price to lows of $23.19.
However, between June 16th and June 24th, RBLX has rallied significantly. The stock climbed 47.5% in little over a week. Although the performance of RBLX looks concerning, there appears to be growing optimism surrounding the stock today, with investors identifying Roblox’s newly discounted price as a strong opportunity to offset the risk associated with the unpredictability of the metaverse.
With this in mind, let’s take a deeper look into whether there’s sufficient evidence that a recovery could be on the way for an embattled Roblox stock:
Strong Signs of Growth
So, why did investors jump on the Roblox bandwagon in late June? One factor that sparked this price recovery was Roblox’s announcement that the company had recorded year-over-year revenue growth of 30%-32% in Q1 2022.
Significantly, the platform also recorded 53.1 active daily users, representing an increase of 23% on the year prior. Furthermore, of those users, Roblox reported that 3.8 billion ‘engaged’ hours were amassed from the platform’s user base in Q1 - representing an increase of 18% in comparison to Q1 2021.
As these positive figures were announced, David Baszucki, Roblox CEO, announced that the company “remained focused on delivering our innovation roadmap to unlock the full potential of the Roblox platform and drive long-term returns for investors.”
In addition to this, Roblox recently announced its revenue had increased significantly in May 2022. At a total of between $194 million and $197 million, Roblox’s revenue represents a year-over-year increase of between 28%-30% - a positive sign for the loss-making company.
Given that the net losses recorded by Roblox swelled to $500 million in 2021, up from $266 in the year prior, the confirmation that the company’s revenue had grown in 2022 is highly promising for investors.
It’s likely that these indicators of growth, coupled with the far lower stock prices attached to RBLX has presented a strong buying opportunity for investors who had been unsure of the company’s prospects back when the company’s shares were valued in excess of $100.
The Road to the Metaverse
Since arriving on the New York Stock Exchange last year, Roblox has always represented more of a long-term bet for investors. The metaverse is still some way from realizing its potential, and Roblox is intent on expanding its reach whilst making a loss in preparation for the emergence of the new iteration of the internet.
“Experts do not expect profit from the company for the next few years. But the company continues to grow its user market in other countries,” explained Maxim Manturov, head of investment advice for Freedom Finance Europe. “For example, an investment data centre in India has helped drive ‘rapid growth’, with the number of users up 160% (1 million DAU) year-on-year. The company is also targeting user growth in Japan.”
“In addition, once Roblox is allowed to sell advertising, it can open up a new level of revenue and increase cash flow. In the current situation, it can be recognised that there is a risk of further deterioration if user engagement falls. It is worth exercising maximum caution when buying such an asset - at least not to acquire a large stake in your portfolio, even though the price has declined decently.”
As part of Roblox’s grand ambitions for the metaverse, we recently saw a major collaboration established between the platform and Gucci, with the fashion giants creating a new permanent dedicated space on Roblox called Gucci Town.
The virtual space takes the form of a circular piazza that’s surrounded by a number of interactive buildings and spaces that users are free to explore. While the move may not have been high in the news cycle, it represents a major coup for Roblox as some of the world largest brands appear to be setting up on the platform. In establishing a virtual space on Roblox, Gucci Town allows users to browse a digital garden, stop by an on-site café, and browse an on-site store where players can buy Gucci goods for their Roblox avatars.
Impressively, Gucci has stated that some 20 million players visited a similar limited installation last year, called Gucci Garden - despite the space only being in operation for two weeks. Gucci is the latest in a flurry of major brands opting to create virtual spaces on Roblox. In May, footwear retailer, Clarks, also took to the immersive space to build their own experience through Roblox.
Although Roblox has experienced a difficult start to 2022, it’s clear that the company’s newly discounted prices have caused investors to become more optimistic about buying into the company. With a comprehensive growth strategy and positive user and revenue statistics posted in such a difficult year for companies to flourish, the recent surge in investor confidence towards Roblox may pay off.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.