A world full of children stuck at home and unable to have casual interactions with friends or attend school in a normal manner has been a total nightmare for working parents since the start of the COVID-19 pandemic, but it has been great for Roblox Corporation (RBLX), a free online gaming platform.
Roblox: 82% revenue growth in 2020
As kids turned to interactive online games as a way of entertaining themselves and connecting with friends, the result was a surge of new Roblox users that resulted in 82% revenue growth in 2020 over the previous year. And with Roblox now trading publicly on the New York Stock Exchange, following a direct listing on March 10th, investors are wondering if the company can continue to produce such strong returns going forward —a question that analysts so far seem to believe will be answered with a resounding yes.
Roblox is not just a game aggregation site, it is a platform of multiple virtual worlds and a seemingly endless number of games. What is truly unique about the platform is that it provides game creation tools that users can not only utilize to make their own games, but from which they can actually earn revenue if their offerings prove popular enough to encourage others to spend the platform’s virtual currency, known as Robux, within them.
Robux, which are purchased with real world currency (something most parents know, having no doubt heard their children begging for it FAR too many times during the pandemic or around the holidays), can be used to purchase a wide range of things within different games, such as custom clothing for a user’s avatar or special objects and abilities.
Because of the ability for amateur game creators to earn money this way, Roblox has attracted roughly 8 million game developers that provide the platform with a seemingly endless amount of new content.
Possible future speed bumps for Roblox
Before investors go chasing Amazon-like returns from the stock, however, it is important to note that Roblox may well face some significant hurdles to any upward trajectory of its stock price.
Pandemics do not last forever. While that is a reality that cannot come soon enough for the general population and most businesses around the world, Roblox, which already enjoyed a strong following among pre-teens, saw its popularity skyrocket as kids cooped up at home sought out ways that they could safely continue engaging in activities with friends without the risk of contracting the coronavirus. But as vaccinations become more readily available and in-person learning and extra-curricular activities such as sports begin to resume, it is unknown if Roblox’s enhanced popularity will endure once children again have other options for entertaining themselves and passing their time.
Other factors that critics cite when looking at things that could hurt its performance are the fact that the platform’s graphics are fairly unsophisticated when compared with other gaming, that much of its content is inappropriate for children in the 5 to 12 year old range who comprise a large portion of its users, and it is rife with bugs and glitches. And then there’s the fact that the chat function within the platform makes it an easy way for predators to target children.
Joost van Dreunen, a professor at New York University who studies the video game industry, believes Roblox may see a temporary falloff, but that it will be able to successfully weather a return to normalcy.
“Roblox will see a seasonal impact in usage just like any other online experience as the combination of fair weather and vaccines revives its players’ social life,” said van Dreunen. “However, because Roblox has grown its user base slowly and reached massive popularity before the pandemic hit, it is likely that its players will remain loyal in the years to come.”
And Drew Crum, an analyst at investment firm Stifel Nicolaus, initiated his coverage of the stock with an $85 price target and a buy rating, citing the company’s unique positioning at the intersection of being a content provider and a facilitator of social interaction as one of its biggest strengths.
Other strengths the company has going for it include its ability to continuously generate new content free of charge and the fact that it is the most popular game platform among pre-teens. Moving forward, Roblox has set it sights on expanding its appeal to the teenage demographic, is planning to expand its international presence and is working on stepping up the sophistication of its graphics and ironing out some of its tech issues. Added to that, Genius Brands and Tankee Inc. recently entered a partnership to create a Roblox series that will air on the Kartoon Channel!, which is likely to further enhance the brand’s youth appeal.
Roblox closed at $69.50 per share in its initial day of trading, up from its opening trading price of $64.50 and roughly 65% above its direct listing reference price of $45 per share. Since then, the stock has hit a low of $60.50 and a high of $79.10, closing most recently at $76.79 on March 17th.