Shares of gaming platform Roblox (NASDAQ:RBLX) were under considerable pressure early this week as the firm disclosed some pretty angst-inducing March metrics. As the economy sinks lower, so too could Roblox stock, but let’s not forget about the longer-term opportunity as the firm innovates on the fronts of generative AI and the Metaverse.
Don't Miss our Black Friday Offers:
- Unlock your investing potential with TipRanks Premium - Now At 40% OFF!
- Make smarter investments with weekly expert stock picks from the Smart Investor Newsletter
Roblox may be down, but don’t count it out as the firm looks to make its mark over the next five years. I acknowledge the rocky road ahead but remain bullish on Roblox stock and its platform, as I believe it offers a glimpse of what entertainment will be like in the near and distant future.
A Glimpse Into the Metaverse’s Future
From virtual concerts to hanging out at a friend’s digital property, Roblox shows us the potential of the Metaverse that goes above and beyond gaming. Roblox has actually become a key part of the everyday lives of its most loyal users. As the company improves its platform and developer base, its users seem likely to draw in more users.
Though nobody knows when the metaverse that Meta Platforms (NASDAQ:META) envisions will take off, I view Roblox as the company that can benefit most from network effects as it looks to serve its loyal audience new and intriguing content and innovations.
For now, the metaverse buzzword seems about as dead as NFTs (Non-Fungible Tokens, remember those?) or cannabis stocks. Still, the time to invest in such game-changing technological trends is when most others have lost interest and moved on to other newer, more exciting things.
There will always be a hot tech trend to punch your ticket to. These days, it’s generative AI, thanks partly to OpenAI and the latest version of ChatGPT. In the future, the Metaverse could return to the driver’s seat, perhaps after Apple (NASDAQ:AAPL) finally unleashes its mixed-reality headset to the world.
In any case, it’s important to remember that emerging tech trends are prone to booms and busts. During the boom stage, investors may overestimate the market potential or underestimate when it will be ready for mainstream audiences.
The Metaverse Has Gone Bust, but It Could Boom Again
It’s hard to gauge when the Metaverse will have its big day. Still, I’d argue that investors may now be underestimating the potential and overestimating the time it’ll take for the technology to take off.
Though Meta Platforms is the go-to metaverse company these days, it doesn’t have a monopoly over the virtual and augmented worlds of the future.
Personally, I view Roblox as a better glimpse into the future of the Metaverse. The Roblox ecosystem has already been thriving for many years. However, the company’s stock has fallen under pressure as expectations have been hovering at unrealistic heights for quite some time.
With rates as high as they are, investors want to see profitability growth. If they can’t get that, they at least want to see sales growth holding up. Right now, it’s tough to please the investment crowd, especially as they use their limited investment dollars to chase other trends in the world of tech.
For March 2023, Roblox said its DAUs (daily active users) were up 26% year-over-year to 66.2 million, while bookings surged by an estimated 25%-29% in constant currency. Still, the stock was punished as March saw DAUs decline (more than 1 million) from February.
Indeed, a sequential user drop is worrisome, but the market may be a tad too short-sighted as the company continues investing heavily in its innovations. As Roblox attempts to lift itself off the canvas after a brutal 2021-22 sell-off, I would look for new tech to push user growth back in the right direction.
Roblox is Getting Into the Generative AI Game, Too
We all know about Roblox’s metaverse-like platform, but what many may discount is the firm’s ability to capitalize on generative AI technology.
We’ve seen firms like Nvidia (NASDAQ:NVDA) flexing their generative AI muscles, with text-to-3D model capabilities. Such powerful tech could be underneath the hood of future iterations of Roblox’s platform. Roblox wants to “enable every user to be a creator.” And it’s generative AI technology that can help the company achieve such a goal.
Currently, Roblox has two intriguing tools, Code Assist and Material Generator, which are in beta. As such tools advance, Roblox can lower the technical barriers stopping a wave of creators from building new worlds and spinning the Roblox flywheel faster than ever before.
Is RBLX Stock a Buy, According to Analysts?
Turning to Wall Street, RBLX stock comes in as a Moderate Buy. Out of 17 analyst ratings, there are nine Buys, five Holds, and three Sells. The average Roblox price target is $44.93, implying upside potential of 10.4%. Analyst price targets range from a low of $21.00 per share to a high of $55.00 per share.
The Bottom Line on Roblox
Roblox remains an exciting long-term growth story, in my opinion. The March metrics are clouding the longer-term opportunity at hand. Roblox stock is not cheap, treading at 11.3 times price-to-sales, just above the software industry average of 10.2 times.
Still, with an early presence in the metaverse and a foot in the door of generative AI, Roblox stock is innovating like it’s nobody else’s business. As it continues investing in cutting-edge, I’m confident that growth will follow.
