Roblox Stock Is Still Not Cheap at Two-Thirds Off

  • Roblox (RBLX) stock has lost two-thirds of its value in 2022.
  • It’s still priced at 10 times revenue, which has doubled each of the last two years.
  • If you’re a young investor who believes the Metaverse is really going to be huge, you might buy the dip.
RBLX stock - Roblox Stock Is Still Not Cheap at Two-Thirds Off

Source: Miguel Lagoa / Shutterstock.com

Roblox (NYSE:RBLX), the game platform often described as a “metaverse” stock, has lost 66% of its value in 2022.

But as with the half-off sale that still has you paying money for something, it’s still not cheap. At its June 29 opening price of $34.50, Roblox’ market cap was $20 billion, against 2021 sales of less than $2 billion.

Those sales were double 2020’s total. That might be worth buying if there were profits to be had. But there aren’t. Roblox’ losses came to 97 cents/share last year, double 2020’s 48 cents. It likely won’t make a profit in 2022, either. Yet only two of 17 analysts following Roblox are telling clients to sell the stock.

Why is Roblox still worth 10 times sales? The Children.

Ticker Company Price
RBLX Roblox $34.00

RBLX Stock: Hold on Tweens

Rocky and Bullwinkle are dead, grandpa. Half of America’s kids today are on Roblox, which is less a game than a game creation platform. Youth-oriented musicians are being pushed to play concerts on the platform as kids spend real money to increase engagement with their favorite artists. Instead of buying the CD, kids are buying online merchandise.

It’s these kids who are driving today’s metaverse market, which Meta Platforms (NASDAQ:META) has bet its future on. Successful marketers like Nike (NYSE:NKE) are rushing in, creating virtual, product-themed worlds.

The risk is that in trying to cash-in on its popularity, Roblox has become “the man.” It’s accused of exploiting children in the developing world and of ripping off people in the developed one. This journalism is under the radar because it’s produced for Alphabet’s (NASDAQ:GOOGL) YouTube. But, as with the metaverse, there’s a real audience for it.

Defending the Stock

Roblox’ growth has slowed as the pandemic has ebbed. The question for investors is whether the last quarter’s problems were a blip or a trend.

Roblox bulls insist that the best is yet to come. They insist that Roblox is the right way to play the metaverse, before the kids and their technology grow up. They see Roblox evolving into a social network, a 2020s’ version of Facebook, with sponsored listings of games and in-game marketing opportunities.

Bears, like Goldman Sachs (NYSE:GS), have downgraded the stock. They’re worried it won’t make revenue estimates for its second quarter. Sales of $650 million are expected, up from $538 million in the first quarter. Roblox next reports August 9.

The Bottom Line

People don’t change much as they get older. My kids still love video games, as they did when they were tweens. I still have my tie-dye shirts.

But technologies evolve rapidly. First-mover advantage isn’t worth what you may think it is. MySpace and Yahoo will attest to that.

To maintain its hold on the audience as the kids grow up, Roblox must continue to invest and make its virtual worlds increasingly immersive. The cost of leadership often grows exponentially as a market evolves, and those who aren’t ready for it are quickly left behind.

This means Roblox remains a speculative stock. You need a compelling value proposition to get 10 times sales for anything in today’s market. You must prove that today’s hockey-stick growth can go to the moon.

The man you’re betting on here is no kid. Roblox founder and CEO David Baszucki, known to his fans as Builderman, is 59. He has already made plans to distribute his fortune. None of his top lieutenants is younger than Meta’s Mark Zuckerberg, let alone Snap’s (NASDAQ:SNAP) Evan Spiegel.

As I’ve said before, I usually bet the jockey, not the horse. Sorry dad, but I suspect Roblox’ future is inside a bigger company.

On the date of publication, Dana Blankenhorn held long positions in GOOGL. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com, tweet him at @danablankenhorn, or subscribe to his Substack.


Article printed from InvestorPlace Media, https://investorplace.com/2022/07/rblx-stock-roblox-is-still-not-cheap-at-two-thirds-off/.

©2022 InvestorPlace Media, LLC