There are multiple reasons to be optimistic about the future of Roblox (NYSE:RBLX) stock right now. The growth company’s recent results have caused some hesitation, but those results can be argued to be a minor bump in the road.
That’s a good place to start when discussing the company which has created a virtual sandbox for users. That virtual sandbox is a collective platform that allows users to explore 3D worlds developed, built, and published to the company’s cloud infrastructure.
Although Roblox showed growth as measured by many metrics within its Aug. 16 earnings report, shares immediately dropped. The good news is that the decline in price was only temporary.
Share prices dropped from $79 to $75 following news that net bookings hit $665.5 million, lower than analysts’ anticipated $683.3 million. Net bookings are also referred to as deferred revenues, essentially a liability and payment for future services or goods.
Yet, for Roblox investors the overall news is positive. RBLX stock retraced those losses in less than a day, and has since risen above $82.
That’s a strong sign that investors remain positive about the trajectory of Roblox moving forward. Part of the reason is that Roblox is still growing quickly despite the net bookings disappointment.
The company’s revenues increased to $454.1 million in the second quarter, a 127% increase on a year-over-year basis. Yet, it must be noted that Roblox is a growth company, and growth companies have specific issues.
Namely, they tend to multiply quickly not only in top line revenues, but also in losses. Roblox’s losses have also compounded. Although revenues increased by 127% in Q2 on a YoY basis, net losses did increase by 97.79% in the same period.
The optimist in me says that at least revenue growth outpaced net loss growth. In any case, the market was only temporarily deterred by the news, and Roblox share prices are higher now.
I believe the reason is that Roblox fits nicely in a growing area. Investors should remain keen on RBLX stock because it is part of a greater emerging trend.
Roblox is a central player in an emerging trend referred to as the metaverse. The metaverse refers to an extensive online world spanning multiple tech platforms where users share virtual spaces through avatars.
Roblox is a big part of the emerging conversation around the trend along with major tech names like Facebook (NASDAQ:FB). A recent Wall Street Journal article notes that: “Enthusiasm for the concept has also helped supercharge valuations of companies such as Roblox”
Facebook CEO Mark Zuckerberg has stated that he envisions the metaverse as the successor to mobile internet. He sees it as a space in which users will be able to play together, socialize, game together, and work.
Companies are interested in the raw commercial potential underlying the metaverse.
Back in May, Roblox hosted a virtual experience celebrating the 100th anniversary of fashion designer Gucci. In the event, users could buy limited edition items for their avatars. It is very easy to envision a future in which users spend increasingly greater sums of real-world cash to outfit their respective avatars in digital brands.
Wear Gucci flip flops in the real world as you slide out of your Bentley? Perhaps in the future you’ll be able to flex in a digital world where you roll up in the same Bentley wearing the same Gucci flip flops. Just want to pretend in the metaverse? That’s fine too. And brands will be making more and more money off of this idea in the near future.
If it sounds too strange to be real, think again. An article from Forbes published in January is proving to be quite accurate when it posited that: “The world’s next Coco Chanel is probably a 10-year-old girl who is currently designing avatar skins in Roblox.”
So, forget what was termed a disappointing earnings report and understand that Roblox is a real force with huge potential and a well-developed platform.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.