About Roblox
This is sort of embarrassing, depending on how you look at it, at least, but we have performed rather extensive research regarding what Roblox is and more times than not we have still found ourselves scratching our heads like primates.
Prior to performing some initial due diligence, we did know that it was a gaming platform of sorts, tailored largely to the younger crowd, namely the mid-to-high single-digit and low-to-mid double-digit gamers out there, however, outside of that we were next to clueless.
Nevertheless, in finally wrapping our heads around a concept that should’ve been a rather simple one (we’re apparently out of touch, it’s whatever) it can essentially be thought of as a game within a game.
More specifically, Roblox is really just a platform through which users (players, really) can, you guessed it, play virtual games that are designed and put together by other users.
You can make a game, play a game or do one a lot more than the other.
Dealer’s choice.
And, well, there are many games to choose from, apparently somewhere in the ballpark of a whopping 40 million.
Like any other gaming platform nowadays, Roblox can also be seen as a social platform where gamers all across the world can actively interact and engage with one another, which we assume made it quite popular during the onset and progression of the COVID-19 pandemic.
Before digging into this company a bit more and how it generates revenue, we think it is worth adding that, from what we have seen, at least, Roblox itself is most certainly in the cereal category.
What?
You heard us.
You know, when you’re strolling around at Walmart and you might see a mother with her son walking down the cereal aisle and he wants that chocolate covered cereal and his mom initially insists that she get him the somewhat healthier brand and he proceeds to throw an absolute fit?
Nine times out of ten the mom has and will continue buying the cereal of the child’s choice so as to immediately calm him down and avoid the temper tantrum of the century.
Good parenting or not, you know exactly what we are talking about.
This being the case, one of the increasingly popular ways in which parents keep their children entertained and occupied without breaking the bank or running the risk of a cataclysmic tantrum is by buying them Roblox and every now and again purchasing a gift card so as to ensure their satiety.
Again, right or wrong, we see what we see.
From our perspective this bodes exceedingly well for a company such as this one, as, especially during, as a random example, a global health crisis where folks were forced or voluntarily opted to stay within their residences, as it is a quick, simple and relatively cost effective way to keep your kids calm and entertained.
Emphasis again on right or wrong.
At any rate, the main way in which San Mateo, California-headquartered Roblox generates its revenues is through the platform’s currency, Robux.
Primarily, Roblox technically runs a freemium business model, meaning many (if not most) features and games on the platform are free but for more advanced features, one has to pay Roblox the Robux.
For example, if a user wanted to touch up their avatar or enhance their in-game experience in a handful of other ways, they would have to buy Robux in order to purchase their desired experience, which, again, we think their parents are typically willing to pay for.
Now that some of the groundwork regarding Roblox, its operations, how it makes money and some of the overall dynamics and features of its platform, it’s about that time to learn more about this company’s core financials in hopes of determining whether or not its stock (NYSE: RBLX) is worth its weight in Robux.
Roblox’s stock financials
Making its stock market debut (initial public offering, IPO) in March 2021, Roblox maintains a share price of just north of $44, a market capitalization of $27.15 billion and has no presently displayed price-to-earnings (P/E) ratio nor does it distribute an annual dividend to its shareholder base, at least at the time of this writing.
All of this preliminary information is sensible for the most part, as this is still a relatively new, young company (founded in 2004) that more than likely has to make consistent, meaningful investments in its current platform and technologies and emerging technologies as well, so as to stay relevant with its user base and try to stay ahead of the competition as well.
In pursuing these objectives, draining cash on a quarterly basis by means of a dividend doesn’t seem to be exactly prudent.
Additionally, we highly doubt Roblox is (net) profitable at the time of this writing, which was frankly to be expected so we aren’t going to harp on it that much, which accounts for the price-to-earnings ratio not being displayed.
Gaining some more information about this company and its core financials, Roblox’s executive team is tasked with taking care of around $5.4 billion in terms of total assets along with approximately $5.1 billion in terms of total liabilities.
For the most part, this also makes sense given the relatively intense amount of initial investment and current investments the company is making, however, we need to see this company act responsibly in the coming years, especially as it pertains to not becoming overleveraged (i.e., strapping on too much debt, more than it can handle and sufficiently service), which could be all too easy given the overall condition of its balance sheet at the moment.
However, given the company’s track record thus far we are not terribly concerned that the company is drifting downwards into bankruptcy territory anytime soon but time will absolutely tell.
Hopefully it stays away from certain banks moving forward as well!
Moving onto the company’s income statement, Roblox’s total annual revenues in the last handful of years have been doing exactly what we expected; growing like crazy.
Specifically, its total annual revenues in 2018 sat at $325 million, rising the following year to $508 million, $924 million in 2020 (likely a byproduct of the public onset of COVID-19), almost $2 billion in 2021, leading all the way up to its latest reported figure (on TD Ameritrade’s platform) of just north of $2.2 billion.
This is among some of the strongest, most consistent total annual revenue growth we have seen in any company.
You can bet your bottom dollar that COVID-19 certainly played a role in accelerating this growth, however, the growth experienced outside of what so far has been the brunt of the Pandemic has still been undoubtedly impressive, likely due to more and more users joining the platform and, through the Cereal Effect, getting their parents and/or other relatives to pay for their premium content and Robux on a consistent basis, as the company’s platform becomes more and more ingrained in children and young adult’s lives.
Before looking at the general state of the company’s cash flow statement, we will admit that we initially anticipated a straight up cash burn festival.
Boy were we right on the nose.
Simply put, the more revenue this company generated (again, specifically referencing since 2018), the more it generally burned through on a year-over-year (YOY) basis.
As a sort of reference, Roblox’s net income stood at -$71 million in 2019, plunging further down to -$258 million in the year that followed, -$503 million, all the way down to its latest reported figure of -$934 million in 2022.
This was rough, but there is some levity to be added knowing this was expected for a rapidly expanding interactive gaming platform.
Also, the sky isn’t completely filled with dark clouds, as it most certainly should be noted that during each of these years its total cash from operations was positive, even if not by a whole lot.
To us, this is quite encouraging as many gaming and software-esque companies, particularly younger ones find it all too challenging to become positive on this front, however, it is a great sign that Roblox’s executive team has found a way to get the job done, as it makes us a tad more optimistic about the company and its future specifically with burning through cash in the years to come.
There’s seemingly a calm at the end of this cash flow campfire if Roblox continues operating and finding new, long-term, sustainable revenue streams.
Roblox’s stock fundamentals
As we move right along to the company’s trailing twelve month (TTM) net profit margin (as displayed on TD Ameritrade’s platform), it is apparent that Roblox has some work to do on this front, as its TTM net profit margin is listed as being -44.47% to the industry’s listed average of 3.41%.
For one thing, we don’t even find the industry’s average TTM net profit margin to be all that exciting, which isn’t a positive as it initially implies that even if Roblox becomes a lot more competitive on this front, it is still not likely to attain a more solid, double-digit TTM net profit margin in the long run, whether that is actually accurate or not.
Again, time will tell.
What we will also say is that given what we have seen with this company, its present and its future plans and the strides it is making, this company just seems like and oddly enough feels like one worth lending some patience towards.
Gaming itself is an industry that is, from our perspective, entering a new explosive, innovation-filled sort of renaissance period, especially as the importance of graphic processors and the integration of augmented reality and the metaverse continue becoming one with gaming and its customers and consumers, the gamers of the world.
This being said, of course, we want to see meaningful progress made on the TTM net profit margin spectrum, however, while the present picture isn’t the prettiest, we think things will shape up over time, especially as Roblox continues expanding its platform and its overall presence, squeezing out some of its perhaps smaller, more nimble competition.
As it relates to the company’s TTM returns on both its assets and investments, it’s not really any sort of shocker to find that its returns on these fronts are also notably lower than that of the industry’s averages given the company’s rapid growth and expansion.
As an example, Roblox’s TTM return on investment(s) is listed as -38.77% to the industry’s listed average of 1.08%
Nevertheless, over time we presume Roblox’s executive team will be able to get the company closer and closer to industry’s respective averages, but again, with all of the investments this company is making and the growth it is experiencing, it isn’t quite showing yet.
Should you buy Roblox stock?
It seems as though gamers are getting younger and younger nowadays.
Obviously, this is a trend that bodes fairly well for a company such as Roblox.
Additionally, it also seems as though more and more gamers are gravitating towards online, personal computer (PC) and mobile and tablet gaming, rather than the traditional console gaming many clinged towards in the mid-to-late 2000s.
This also bodes well for Roblox.
Combining the Cereal Effect , the relatively recession resistant nature of the gaming-sphere, its immensely impressive year-over-year total annual revenue growth, its fine balance sheet, its more than solid total cash from operations (on a year-over-year basis as well) and the organic growth to be captured in related spaces (i.e., the metaverse), we are willing to set aside some of this enterprise’s relatively lackluster TTM return metrics for the moment (of course, still looking to see them grow and become increasingly more competitive throughout the next handful of years) and give the company’s stock a “buy” rating, especially given the fact that its share price has come down to more favorable, lower levels in recent history.
We just don’t think this is a train many will want to miss.
DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.