The pandemic-induced remote economy and the subsequent rise of digital gaming have been a boon for Roblox (NYSE:RBLX) stock. Investors and analysts are increasingly optimistic about the online gaming platform, which now holds a market capitalization of $42 billion.
While there hasn’t been a significant appreciation in its price since going public, Roblox is positioned to disrupt the billion-dollar gaming industry. Amidst a slew of recent stock upgrades and a business model that caters to the modern-day gamer, RBLX is worth investing in for its long-term gains.
RBLX Stock Is Fueled By Gen Z Gaming Trends
Roblox isn’t a game in itself but a community that brings gamers from around the world to build and share games with one another. Given that gaming is a billion-dollar industry, this community-centric platform has become a huge hit among avid gamers. Roblox has a unique premise because it provides players with a virtual gaming experience coupled with regular social media features. In turn, this gives the company a huge runway for growth as it expands beyond the gaming realm.
The company operates what it refers to as the “metaverse” where gamers can come together and play games in a virtual environment. Think Ready Player One but in real life.
This digital-first gaming environment has been a big hit in the Generation Z community that Roblox considers its core audience. As a generation that grew up in the tech era, companies that are able to digitize real-world experiences stand to gain big. Moreover, given that its target audience is so young, Roblox has plenty of potential to grow and expand its core business.
As for the numbers, you could say Roblox is at the top of its game. At its IPO on March 10, RBLX stock was up 54.5% ending the day at $69.50. Since then the company has seen more appreciation in its price, trading at $76.
Last year, the company raked in $924 million in revenue and holds a market cap of $39.5 billion, which is an impressive value for a company of its size. Roblox expects this revenue to grow 56% this year to approximately $1.52 billion. With over eight million developers and 32.6 million users on its platform, it is poised to hit these targets.
Place Your Bets On This High-Growth Stock
Roblox’s initial growth this year was largely driven by the remote economy as people turned to online games to stay connected. However, as states start reopening this year, the company anticipates a decline in its growth trajectory.
But that’s not to say it won’t grow this year. We may just not see Covid-era highs. On the flip side, a decrease in growth rates may not be all that bad, given that the stock is trading at a premium valuation right now.
Looking at the bigger picture, RBLX stock is positioned to deliver some spectacular gains. Adding to its optimistic guidance, the company has received a slew of optimistic ratings from analysts. As reported by Barrons, Morgan Stanley and BofA Securities gave the stock a buy rating. Brian Nowak, an analyst at Morgan Stanley believes Roblox will experience increased user growth this year. With greater potential ahead, he gave the stock a price target of $80. Ryan Gee of BofA gave the stock a $78 price target.
The Bottom Line
With a high-growth business model and investor optimism towards the stock, there’s no doubt that Roblox is in for better days ahead. If RBLX is able to keep its revenue numbers up, it will drive the stock price higher in the coming months.
But it is also worth noting that management expects growth to slow down this year. According to Roblox, sales will not hit their pandemic highs until 2022. This is likely to dampen its growth trajectory this year.
Nevertheless, if you are looking to invest in RBLX stock for the long haul, there’s no better time to make your move. The gaming company has a long runway for growth as it continues to capitalize on a greater share of the Gen Z market and expand its business model to cater to an older demographic.
The stock is trading at a premium and could be headed for a correction. But in terms of its fundamental value, RBLX stock is a good investment.
On the date of publication, Divya Premkumar did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Divya Premkumar has a finance degree from the University of Houston, Texas. She is a financial writer and analyst who has written stories on various financial topics from investing to personal finance. Divya has been writing for Investor Place since 2020.