Roblox’s 37.1% return over the past six months has outpaced the S&P 500 by 32.1%, and its stock price has climbed to $60.52 per share. This run-up might have investors contemplating their next move.
Following the strength, is RBLX a buy right now? Or is the market overestimating its value? Find out in our full research report, it’s free.
Best known for its wide assortment of user-generated content, Roblox (NYSE:RBLX) is an online gaming platform and game creation system.
As a video gaming company, Roblox generates revenue growth by expanding both the number of people playing its games as well as how much each of those players spends on (or in) their games.
Over the last two years, Roblox’s daily active users, a key performance metric for the company, increased by 21.7% annually to 85.3 million in the latest quarter. This growth rate is among the fastest of any consumer internet business and indicates its offerings have significant traction.
Consumer internet businesses like Roblox grow from a combination of product virality, paid advertisement, and incentives (unlike enterprise software products, which are often sold by dedicated sales teams).
Roblox is extremely efficient at acquiring new users, spending only 17.8% of its gross profit on sales and marketing expenses over the last year. This efficiency indicates that it has a highly differentiated product offering and strong brand reputation, giving Roblox the freedom to invest its resources into new growth initiatives while maintaining optionality.
Average revenue per user (ARPU) is a critical metric to track for video gaming businesses like Roblox because it measures how much revenue each user generates, which is a function of how much paying users spend on its games.
Roblox’s ARPU growth has been mediocre over the last two years, averaging 4.7%. This isn’t great, but the increase in daily active users is more relevant for assessing long-term business potential. We’ll monitor the situation closely; if Roblox tries boosting ARPU by taking a more aggressive approach to monetization, it’s unclear whether users can continue growing at the current pace.
Roblox’s merits more than compensate for its flaws, and with its shares beating the market recently, the stock trades at 38.8× forward EV-to-EBITDA (or $60.52 per share). Is now the right time to buy? See for yourself in our full research report, it’s free.
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