By now, you’ve probably heard that toy giant Hasbro (NASDAQ:HAS) is partnering with Roblox (NYSE:RBLX) to create a range of Roblox-inspired NERF blasters representing some of the most popular experiences on the Roblox platform. The news sent RBLX stock to an all-time high of $83.41.
RBLX stock finished the day after down 8%, giving back much of its gains post-announcement.
The positive from this is that any way you slice it, the Hasbro partnership is an example of mainstream businesses jumping on the Roblox bandwagon.
I’m asking myself whether this is indicative of something more permanent or merely a passing fancy.
I’ll consider both sides of the argument.
The Hasbro Partnership Is Just the Blastoff RBLX Stock Needs
It’s hard to believe, but Roblox has a market capitalization of $43.5 billion, three times that of Hasbro, one of the world’s largest toy manufacturers.
Interestingly, most of Roblox’s gains in its market cap came on its first day of trading, when it opened at $64.50, up 43% from its IPO reference price of $45. It closed out March 10 trading, up 54% at $69.50.
Since then, it’s managed to add another 10 bucks to its share price, but it appears that the easy gains have already been had. That said, the partnership might end up bringing some institutional investors to the table.
After all, I hadn’t heard anything about Roblox when I wrote about it shortly after its IPO in March, and I’m paid to cover stocks of all kinds. I suspect the fact that the Roblox gameplay and creation platform’s main users are under 16 had a lot to do with its relative anonymity.
However, once you get into bed with the maker of legacy products such as NERF, Transformers and Monopoly, you instantly gain a new audience.
So, the fact that Hasbro is taking pre-orders for the MONOPOLY: Roblox 2022 edition, which lets fans collect and trade Roblox experiences while playing one of the most popular board games of all time, suggests Roblox’s audience, both in terms of the type of investor and the platform’s daily users, are about to get a whole lot larger.
In 2020, Roblox increased its daily users by 85% to 32.6 million. The revenue growth was eerily close, up 82%.
I believe it makes sense to invest in companies whose products investors frequently use — say, daily or weekly — which means as Roblox’s user base grows, so will its investor base.
Well, that’s my theory, and I’m sticking to it.
The point is Roblox expects to simultaneously grow its number of users in 2021 and the amount its users spend on the site. According to Pymnts.com, the company expects user growth to be between 6-12%, translating into 56-64% revenue growth over 2020.
Who knows what the Hasbro partnership means in terms of actual dollars generated from the NERF and Monopoly offerings? The only thing that matters for owners of RBLX stock is that it generates more buzz.
The Hasbro Partnership Will Soon Be Forgotten
There was a time in early 2019 when investors soured on Hasbro stock. After the collapse of Toys “R” Us, the toy company was having trouble recapturing the sales lost from the retailer’s bankruptcy and closure.
HAS stock went on to hit $120 on two occasions in 2019. And, since hitting a five-year low of $41.33 in the March 2020 correction, Hasbro’s stock’s gained 142% and looks ready to make another move toward $120.
In 2020, Hasbro’s sales decreased by 8% to $5.47 billion, while its adjusted operating profit fell by 1% to $826.7 million. Importantly, however, its operating profit for the U.S. and Canada grew by 30% while its sales rose a respectable 4% year-over-year to $2.56 billion.
These are signs it’s finally resuming its growth after the Toys “R” Us debacle.
What’s this have to do with the Roblox partnership?
Hasbro is trying to sell products to young people. If young people frequent Roblox, which they do in droves, any marketer worth their salt would be exploring ways to tap into that audience. The partnership does that.
That said, the one thing I know about marketing executives is they’re always looking for the next “it” product or thing to drive sales. Today, it’s Roblox. Tomorrow? Who knows what it will be, but there’s an excellent chance that by then, Hasbro will have extracted the maximum amount of value from its partnership.
And then it will move on.
The Bottom Line
Trading at almost 43 times sales, it’s not cheap.
In my March article about Roblox, I wondered if I should own Roblox. I concluded that I found it to be one of the most fascinating businesses to IPO in a very long time.
Hasbro’s partnership gives Roblox two thumbs up. I believe it’s enough to start the stock’s next leg up to $100 and beyond.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.