Shares of Roblox (NYSE: RBLX) have been under considerable selling pressure amid the downfall of the broader tech sector. Though Roblox is one of the most exciting metaverse companies on public markets today, investors simply don’t care for growth stories as much as profits in the present. In due time, rates will peak (or reverse), and the growth trade will heat up again. Until then, Roblox stock seems more like misunderstood value play than another speculative tech firm with its head in the clouds.
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Roblox stock lost more than 83% of its value from peak to trough before recovering a bit of ground. Today, shares are still well off their peak, thanks partly to jitters over Fed rate hikes. Even as Roblox’s relief rally fades, I remain bullish on Roblox stock.
Roblox Continues to Grow Its Moat
The company has a growing moat with its impressive user base. Many loyal users are likely to stay increasingly engaged, even as the coming economic downturn puts a bit of a dampener on bookings growth. Sure, less money to spend on cosmetics and content may be a drag on the stock, especially as investors look for the firm to improve profitability. Regardless, Roblox remains one of the cheaper forms of entertainment out there (it’s free for those who don’t choose to buy Robux, the platform’s in-game currency).
As a result, Roblox may have the opportunity to cut further into the turf of other video games as consumer spending looks to dry up in the face of a recession. The company is also investing in its developers, offering more lucrative payouts for engaging new experiences in the Roblox platform.
On the surface, Roblox looks like another video game with bad graphics. However, it’s a co-experience platform whose potential may not be fully understood by non-users until the metaverse comes to be.
The Metaverse is Coming, and Roblox is Ready
The metaverse may be closer to prime time than many skeptics think. Meta Platforms (NASDAQ: META) is slated to unveil a new Oculus headset on October 11. With Apple (NASDAQ: AAPL) also rumored to have an AR or VR headset in the cards for the first half of 2023, a mild recession may not be able to stop the coming technological shift.
Those without headsets will soon come to appreciate what the metaverse has to offer. Even non-tech firms, like Williams Sonoma (NYSE: WSM), which recently launched a collaboration with Roblox, will not be able to resist getting in on the action.
The metaverse is still in its early days, but Roblox seems to be what firms like Meta Platforms are shooting to become. Indeed, Meta’s Crayta platform seems to resemble Roblox. The only thing Crayta lacks is the massive network that may be more “locked in” than Roblox’s metaverse rivals think.
Facebook had a social network that was tough to dethrone for many years due to its ability to attract users. More users signed onto Facebook versus rival social-media platforms because it had the most users. Eventually, Facebook’s user growth snowballed until it had just shy of 3 billion users.
At this juncture, it seems far-fetched to think that a most popular game with younger audiences will grow a network in such a profound way. If Roblox can continue reinvesting in its users and developers rather than shooting for near-term profits, I do think its user growth could reaccelerate on the other side of a recession. Metaverse tech is sure to advance by leaps and bounds in a few years, and it’s Roblox’s co-experience platform that could evolve to become the platform that Meta wants to create.
Unfortunately for Meta, the Roblox snowball may be too large to disrupt. Even with economic storm clouds coming in, Roblox’s DAUs (daily active users) metric has a lot of long-term momentum behind it. Though DAUs slipped from 54.1 million to 52.2 million in the latest quarter, the trend still seems intact.
What is the Price Target for RBLX Stock?
Turning to Wall Street, RBLX stock comes in as a Moderate Buy. Out of 17 analyst ratings, there are eight Buys, seven Holds, and two Sells.
The average Roblox price target is $43.00, implying upside potential of 13.4%. Analyst price targets range from a low of $21.00 per share to a high of $58.00 per share.
Conclusion: RBLX is Still a Metaverse Frontrunner
Roblox stock is in a rough patch, with bookings slipping. That said, the snowball is unlikely to stop rolling just because of the state of the economy. As interest in the metaverse increases over the coming years, Roblox’s unique co-experience platform could begin to appeal to the broader public.
Indeed, Roblox is still very much a young person’s platform. However, Roblox is increasing its reach among older audiences. As more features are rolled out, one has to think Roblox is more than capable of growing beyond its target market.
