Roblox is a pioneer in the metaverse, an area where individuals interact with each other and with the environment virtually. The company has, as of present, built its success mostly with kids aged 9 through 12. Although, it doesn't mean that the company is only targeting this market segment as they also have people from other age groups as active users.
The Covid-19 pandemic accelerated the growth of Roblox as kids were forced to spend a lot of time at home. Being locked at homes for extended periods, the kids were forced to look for ways to entertain themselves and interact with their friends. Roblox came to the aid of such kids and thus was also able to increase its user base significantly. The company has proven its utility and has seen rapid growth in users and engagement but does this growth in popularity make the Roblox stock a buy?
Roblox has made free-to-join a lucrative business
Roblox app is free to join, and players can sign up and enjoy a multitude of free activities available on the platform. Roblox currently boasts 48.2 million daily active users, which is more than 32% of the number of daily active users that it had as of August last year and is up 5% from the month before. The company has impressively held on to the surge of players that signed up in the early days of the pandemic. Investors worried that as the economies would open, the company may shed some of the users acquired during the pandemic, thankfully that has not happened.
One may be curious as to if Roblox is free to join, then how would the company make money. Roblox sells an in-game currency Robux to generate revenues. While most activities on the Roblox platform remain free, some require players to buy access using Robux. Roblox earned revenue of $454 million in the recent quarter that ended on 30th June. The revenue of $454 million was up more than 127%from the same quarter last year.
It's important to note that the company is earning its revenue in a cash-accretive manner. Cash generated from operations increased to $196 million in the most recent quarter. The company's business has an embedded robust cash generation model that helps it generate cash from its activities. Users spend money to buy Robux, which they can use to buy items and experiences over time. Robux pays developers only when players use the items developed by outside developers. All the risk is transferred to outside developers who risk their time and resources to develop products and experiences for the users and these developers get paid only if the players are enjoying their products.
Competition from Facebook
Roblox has long dominated the metaverse category until now, although this is set to change as Facebook has announced its intention to join the metaverse category. Given the large size and resources of Facebook, this development can lead to trouble for Roblox in the future.
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Release ID: 41859