Rising video game star Roblox (NYSE:RBLX) has enjoyed a red-hot week. RBLX stock is up more than 9% on the day, just barely below its all time high, which it achieved earlier this week. So what’s going on with the prolific entertainment stock?
Roblox is an online game platform and creation toolset that is currently one of the most popular games in the world. In 2020, roughly half of all children under 16 reported playing Roblox in the United States. It’s important to note that Roblox isn’t a game so much as a platform with which to develop and play other people’s games. In fact, more than 20 million games have been published on the platform, earning many developers millions in revenue.
How, you might ask? Robux. Roblox and all games on the platform are free to play, but they offer exclusive, aesthetic, virtual merchandise that can be purchased via — you guessed it — Robux. The in-game currency is purchased with real money, and game-related merch gives a share of the profit to the developer. Once they have earned enough of the virtual currency, they can trade it into real money using a Developer Exchange.
The margins on digital sales are pretty much astronomical. Additionally, they have become so popular that Roblox itself went public this past spring. This week, RBLX is up 26% after a strong earnings report earlier this week, but there’s more to the story.
From Shut Down to Shot Up, Why Is RBLX Stock So Hard to Predict?
Despite it’s strong performance at the moment, Roblox was in hot water just earlier this month. From Oct. 28 to Oct. 31, the gaming platform was completely shut down. This is a big no-no in general for game publishers, but for a property as popular as Roblox, it was a doomsday moment. RBLX stock dropped close to 5% in the three days the game was down, due to an apparent internal server error. Though, in hind sight, this drop only fueled the rally to come.
After a week of pessimistic speculation that dropped the platform’s stock more than 8% earlier this week, Roblox bounced back with a vengeance after a strong quarterly report bolstered the sock. Though, at first glance, it may seem rather speculative.
Roblox reported a 102% jump in year-over-year revenue to $509 million, which was actually below expectations by $127 million. The company’s net losses beat expectations by a penny, for an earnings-per-share (or loss in this case) of -13 cents per share. RBLX’s saving grace came in the form of its daily active users (DAU).
It’s no secret Roblox is popular, but bearish speculation that its user base was due to the pandemic has been properly quelled. Roblox reported increasing its DAU by more than 4 million, from 43.2 million in Q2 to 47.3 million in Q3. The resulting boom may seem unjustified. However, when you consider the doom-and-gloom forecast many investors placed on the stock heading into a post-pandemic world, going so far as to increase its usership could confirm its destiny a top the virtual mountain (and sky-high market capitalization).
On the date of publication, Shrey Dua 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.