It's been a tough couple of years for Roblox (RBLX 6.52%) shareholders. Shares of the online game platform are down 80% from their late-2021 peak and are knocking on the door of new record lows. The shares accelerated their sell-off late last month, plunging in response to last quarter's results. Revenue fell short of estimates, and its expenses are growing too quickly.
Take a step back and look at the bigger picture, though. While the company's still got a great deal to figure out, Roblox is quickly becoming the go-to metaverse platform for organizations looking to build immersive, interactive consumer experiences. It's going to be a much bigger -- and likely more profitable -- outfit five years from now.
NYSE: RBLX
Key Data Points
Don't jump to conclusions about the metaverse
There's no denying the metaverse hasn't become the game-changing technology it was supposed to be when the idea was first touted (mostly by Facebook parent Meta Platforms) just a few years ago.
Digital marketing consultancy BlueLabel's recent survey of over 1,000 people indicates that more than half never enter any metaverse platform. And the vast majority of the people who are regular visitors to a virtual reality world only use the metaverse for gaming purposes.
It's far too soon to presume the metaverse is a bust, though. In fact, it likely isn't. It's simply so new that many institutions haven't fully understood how best to utilize it or what draws a crowd to these virtual worlds.
Roblox is more than a mere gaming platform
Enter Roblox. Roblox's roots are in the video gaming market. It's since branched out, however, to more business-like uses.
Case in point: Early last year, the National Football League tapped Roblox to launch NFL Tycoon, bringing football fans into the business of the professional sport with an interactive experience. It's a game in the broadest sense of the word but one that forces players to think rather than manipulate a character around moving obstacles.
Athletic apparel brand Nike is also using Roblox's technology to build its so-called Nikeland, where visitors can not only play games but also learn about the company's newest products. Players' in-game avatars can even wear digital versions of Nike's latest sneakers.
Image source: Getty Images.
Brands that are less athletic are test-driving Roblox's offerings as well. Fashion outfit Ralph Lauren, for example, operates a clothing store within its own metaverse, which is credited with driving sales growth in the real world. Carmaker Hyundai uses Roblox's tech to help promote its current and future vehicles.
Right place, right time, right product
While it's just a sampling of Roblox's impressive list of corporate customers, this is still not the proverbial "best of" the metaverse. That's because we still mostly don't know what the future of the metaverse holds.
What we do know is the current metaverse(s) have only scratched the surface of their expected potential. Precedence Research believes the metaverse market itself will grow from last year's $68 billion to be worth $1.3 trillion by 2030, an annualized growth rate of 44.5%. Emergen Research pegs its yearly growth rate slightly higher at 47.2%. Even at only half that pace, though, the metaverse now stands as one of the market's top long-term growth opportunities.
And Roblox stands as one of the top ways to plug into this growth, too. Despite the stock's recent weakness and last quarter's disappointing top line, on a constant-currency basis, Q2's revenue was still up 17% year over year.
The average number of daily users came in at 65.5 million, up 25% from the second quarter of last year. Although still in the red, the company's ramped-up spending is arguably an investment in preparation for brewing market growth. To this end, Roblox is now looking to shake off its gaming-centric metaverse categorization and reposition itself as a digital marketing collaborator. Smart move.
Roblox 5 years from now
Obviously, there are no crystal balls that can guarantee where a company will be in the future. There are only reasonable, educated guesses.
To the extent that any investor can take a level-headed guess regarding where Roblox will be five years from now, though, odds are good that it will still be around. It'll just be much bigger with a much higher stock price. Its current daily user headcount of more than 65 million could double. Ditto for revenue, which analysts collectively expect to happen.
Meanwhile, some other metaverse platforms are imploding under fiscal strain -- like Meta's decision to shut down Crayta after acquiring the metaverse gaming platform two years ago -- as it lacks the scale Roblox already enjoys. This should help clear the playing field for Roblox.
Perhaps the biggest change Roblox may see in the next five years is to its bottom line. It still may not be net-profitable by that point. But it should be moving decidedly in that direction by then and even before then. That could be more than enough to spark new bullishness in the stock sooner than later. Analysts' consensus 12-month target is $37.60 -- nearly 40% higher than current levels.
Wedbush Securities upgraded Roblox stock following its recent sell-off, and analyst Nick McKay notes, "We expect patient investors to be rewarded by continued topline growth coming from the expansion of key user metrics, a slew of new product introductions, and a more aggressive approach to cost control in future periods."
In other words, the company's future should look drastically different from its past. It's not a bad bet here for aggressive investors who can stomach above-average risk.
