Returns as of 01/22/2022
Returns as of 01/22/2022
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Roblox (NYSE:RBLX) is a platform that allows developers to create games and experiences for users to enjoy. To be clear, Roblox doesn’t develop its own content. And this is why Fool analyst Sanmeet Deo likens the company to YouTube, the lucrative video-streaming platform that’s comprised entirely of user-generated content.
This isn’t the only reason to like Roblox. In this video from Motley Fool Backstage Pass, recorded on Jan. 10, Sanmeet lays out the many reasons he likes the company, including its positioning in the budding metaverse trend.
Sanmeet Deo: [laughs] It’s funny because this is one of those pandemic names that I actually found out pretty much from my kids. My full disclosure: I own it, my kids own it. I bought it for them in their portfolios, in their accounts that I set up for them. I found out about the company literally about that from them. They were using it quite a lot during the pandemic, like many kids were. It was basically like their third home outside of school; if they are in school, and then home. It was actually a social network where they were actually meeting and engaging with different friends and people. They told me about it, I played it with them, and I was like, «This is really interesting.» Then ironically, later on, it announced that it was going public, and I got immediately interested in it.
I’m very bullish on Roblox. I think it’s a great company. One of the things I like about it a lot is the founder is very impressive. He is the founder of the company. He’s still current heavy shareholder-owner, and owns quite a bit of the shares. Also, quite a bit of the voting power of the shares. Majority voting power is in his hands, but very actively engaged with the company. I’ve heard him speak on analyst days and calls. He’s like one of those visionary founders and leaders that you can get behind. I like what he says, his vision, and where he wants to take the company.
Roblox is basically a platform of experiences, and games where you create an avatar, which is like your own personalized character. You can add clothes, hats, different skins, different things to customize your character. Then you jump into one of the many different experiences they have. They have games where you can pretend like you’re working at a pizza store. There’s games where you can pretend where you own a house and you’re living in a community. Basically, we hear a lot about the metaverse, and they are the ones that are at the forefront of the metaverse at the current time. If you want a real metaverse experience, going into Roblox will be probably one of the best metaverse experiences that you get.
What I like about it, too — and I think of Roblox as the YouTube for gaming, YouTube for metaverse, because it’s a user-generated content platform. All of the experiences are created by developers. Roblox doesn’t produce their own content. It’s produced by developers who have grown up within the system of Roblox, playing games, and designing games. Now, certain individual developers have gone from just them designing these experiences to creating a whole company of software designers that are creating Roblox experiences. They are building businesses on the platform, which I think is phenomenal. I mean, we’ve seen the success of YouTube with its user-generated content platform. I like the aspect that it’s a platform that gives developers the ability to monetize from it. Roblox pays out these developers a hefty amount every quarter.
When a user plays on Roblox, they purchase Robux, which is their virtual in-game currency. When using those Robux, you can pay for experiences, and these skins, and these clothes, and these in-game items like I was talking about. Then a share of that is taken by Roblox, and the other share is given to developers. As their experiences are used more, as their games are played more, they are able to collect more in revenue for themselves. It’s proven successful.
One of the knocks on Roblox has been that its primarily under-13 demographic. While that is the case — the majority of their demographic is under 13 — their over-13 demographic has been growing at a very high rate. I will just share a quick screenshot right here that shows this chart from Roblox themselves. It shows you that this light blue right here is over-13 demographic, and over the past few quarters, it’s been growing at a much higher clip than the under 13. That’s going to change. The experiences or games they have on there now are going to expand and grow as they’re expanding their platform and getting tools that develop better-looking, creative, less block-y avatars. They bought a company that I think it’s similar to Discord, I think it’s called Guilded, which allows people to communicate.
Anyway, I know we’re running short on time, but I could go on and on about Roblox. The bottom line is they’re growing users. They have nearly 50 million daily active users. It’s growing, engagement is strong. Their deferred revenues or the Robux that’s being paid out into the system is growing. They’re cash-flow positive. While they’re not operationally like income positive, they’re cash flow positive, using that income, the cash flow, to go back into the business. I love Roblox. I think it gives us a great platform that’s going to grow and expand over many years.
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