TL;DR
- My Research suggests Roblox is a big buy
- The Roblox platform has over a billion hours of play time per quarter and increasing
- Revenue continues to increase
- Investor Day showcased an ambitious technology and business road map
Why Roblox is a Long Term Buy
Forget the flashy news about Roblox (RBLX) and the “Metaverse”. Forget about the fast money with Roblox. Roblox is a wealth stock for a wealth portfolio. You think Roblox’s recent 60% gains are nice? Well, the continued appreciation of Roblox stock could become a regular occurrence just like other high growth tech companies before it.
Ignore the talk about “metaverse”. Ignore all the ways people try to label Roblox. Roblox has a powerhouse community of developers and gamers and a platform set to revolutionize media. There is no fixed box for Roblox to fit in yet because the platform is expanding faster than the company can be defined.
What is Roblox
Roblox is a human co-experience platform that enables shared experiences. At its core, Roblox is a gaming platform. On Roblox, you can jump into different games, worlds and simulations with your friends, family, and millions of other players in the same experience together. There are thousands of different experiences created by the community to explore.
What makes Roblox unique is its development community. It’s easy for anyone to start building a game on Roblox. My son and I built a zombie game in a few days without much difficulty. In our game, you run away from zombies while avoiding lava flows. Many of the game’s assets were developed by the community for any developer to use. Though it is easy for anyone to make a game, some of the top games have millions of players. Developers can earn millions of dollars which allows them to build their own businesses around Roblox. For example, Redmanta is a developer studio that creates content exclusively for Roblox.
Roblox is also a social media platform where you engage with your network inside these 3-D worlds and games. But what’s even more interesting is that the development of games is also social. When a team is working together on a project, team members can see what their teammates are designing. For example, in a Roblox team project, when one designer places a bridge in the game, their teammates will see that bridge placed in the game real time.
The key to Roblox is community. The developers and users interact in one community to build and experience imaginative new worlds together.
Is Roblox Safe for Kids?
From my experience, I would say yes… kind of yes. I am fine with my six-year-old son playing Roblox. But he can only play on the desktop in the living room with the monitor facing out towards the living room. That way mom and I can monitor the games he is playing to make sure they are appropriate. For example, one game he cannot play is called “Piggy”. This is a game where an anthropomorphic killer pig chases you around a scary setting. Very popular, but not appropriate for my six-year-old.
A game that is appropriate for my six-year-old is called “Pet Simulator”. This game just happens to be the most popular game on Roblox per Statista with 23 Billion visits as of July 2021.
In this hilarious simulation, you buy pets and these pets mine chests for gold. This gold is used to buy new and better pets. This simple concept of a game is played by millions with many of these users interacting together in this experience. New content for this game is added monthly. Videos of people playing pet simulator can be found all over YouTube as it is a very popular game to stream and watch.
Let’s Talk Numbers
In God we trust, everyone else bring data. And Roblox brought the data. There are three metrics that really matter as we go through Roblox’s recent quarter results: Revenue, Daily Active Users, and Total Hours Engaged. We also need to keep an eye on EBITDA and its recent sell of $1 Billion in loans. You can find this data on the Roblox Investor Relations website.
Revenue
Make more money right now! As of November 2021, you’re paying $30 for every $1 of Roblox revenue. To give perspective, you currently pay $4 for every $1 of Amazon Revenue. However, Roblox’s revenue is increasing at a rate of 100% per year. So, is $30 for $1 of revenue worth it? In the short term there is likely to be a pullback as this seems historically high. However, such a pullback may just be blip, so though the price may be rich right now I do not think its overvalued if you’re looking five to ten years out.
For a company with vast growth potential this price may just be a steal.
Daily Active Users
Simply put, daily active users is the number of users that are using Roblox every day. This metric is simple to assess: it must keep going up. One slip and alarms must sound.
Hours Engaged
11 billion hours of humanities time was spent on Roblox simulations last quarter! We are already in the Matrix my friends! Same basic principle as daily active users: this metric must continue up or investors need to be concerned.
The Billion Dollar Loan
Roblox sold $1 Billion worth of notes in October 2021. What does this mean? Is this bad? So worst case scenario, this is a big cash infusion that lets the Roblox team build a lot of stuff that could just go nowhere. In our Roblox Investor Day section I’ll discuss how this capital is focused on improving the community experience. A happy community will translate into an improvement of the top line. Nonetheless, this is a lot of debt to take on. What may really be happening is that Roblox insiders are confident in Roblox and would rather take out a loan instead of selling more of the company.
Investor Day
At the Roblox Investor Day, Roblox CEO David Baszuckithe and his team showcased the new and upcoming innovations Roblox is creating to its investors. It was a four-hour long stream, so to save you time, I watched all of the investor day video. You can watch it as well here. Overall, I ended the video feeling confident in Roblox and in how they plan on expanding the Roblox audience and experience.
Updates to Avatars
Roblox avatars are your character when you’re playing a Roblox experience. You can change your characters clothes, hair, or even add wings, hats, or other accessories. In the Investor Day presentation, the Roblox team went into excruciating detail about their next iteration of the Roblox avatar. Their past avatar had clothes painted over the character. New avatars have a standardized API that is more of a skeletal structure instead of a combination of blocks.
Clothes and accessories will fit on the avatars regardless of model. The community designs all this wear, and what was interesting was that when you design a sweater it will fit on a human model, a dragon model, or a bipedal turtle model. The standardization of these models while still allowing an infinite design space is fascinating. As an investor, you may scratch your head on why someone’s avatar matters, but it matters to the Roblox community. Your avatar represents an expression of you. It’s a very good sign they are deep into the needs of their community.
One jacket to rule them all! One jacket designed by a developer can fit on a variety of different avatar types.
Safety and civility
The Roblox team kept saying Roblox is safe for kids, so it must be true? You can tell they were coached to be on theme as different leaders from multiple disciplines kept stressing this point. I know from a parent’s experience that Roblox can be the wild west of content, but they are throwing a lot of technology at safety and civility including artificial intelligence and advancing human monitoring processes. I like that they know a weak spot in their business plan and are putting effort into resolving these issues.
Same Roblox Experience Regardless of Device
Are you on the desktop, tablet, phone, or a TV? Roblox wants you to have the same experience in a game regardless of the device (including virtual reality). This means developers only design for one experience instead of multiple devices. As a programmer myself I can tell you what a headache it is trying to code and design for different devices. By standardizing the development process, the developer can now focus more on building the experience without having to worry about different platforms. I know from playing Roblox that the platform successfully creates the same experience for tablet and desktop. When I play Roblox with my son, we can seamlessly play together in the same experience while he is on his tablet and I’m on the desktop.
We’re Going Beyond the Typical Obby
If you played Roblox pre-pandemic, you know Roblox’s past was all about obbys. These are 3-D obstacle courses that were (and still are) extremely popular. Well, Roblox 2022 is pushing the boundaries of community games. These new games look amazing. Think about the best PS5 games and they are pushing into that territory. The difference though between a PS5 game and a Roblox game is scale: Roblox is about thousands playing together in a single experience.
The Roblox team is pushing the boundaries of visualization on Roblox:
A New Way to Market
Of all the boldest statements, the marketing statement I believe was the boldest:
“In the next 5 years, all brands will have a Roblox strategy.”
The team leader said that in five years, most companies will need a Roblox marketing campaign. This may sound ridiculous, but Coke, Chipotle, and Gucci all have built their own advertising simulation in Roblox. These were Million-dollar campaigns and had serious engagement with the community. A bold statement indeed.
Final Thoughts
Roblox is facing a surge of growth and technological transformation. The company has an opportunity to disrupt not just the gaming industry but social media as well. They are a brand that will be relevant for the next twenty years as they’ve already become a big part of the lives of children all around the world. I purchased Roblox stock right after the IPO and I plan to not touch it for at least three to five years. And if every brand has a Roblox strategy by then, well I may need to hold for another five years after that.
I/we have a position in an asset mentioned
TL;DR
Why Roblox is a Long Term Buy
Forget the flashy news about Roblox (RBLX) and the “Metaverse”. Forget about the fast money with Roblox. Roblox is a wealth stock for a wealth portfolio. You think Roblox’s recent 60% gains are nice? Well, the continued appreciation of Roblox stock could become a regular occurrence just like other high growth tech companies before it. Ignore the talk about “metaverse”. Ignore all the ways people try to label Roblox. Roblox has a powerhouse community of developers and gamers and a platform set to revolutionize media. There is no fixed box for Roblox to fit in yet because the platform is expanding faster than the company can be defined.
What is Roblox
Roblox is a human co-experience platform that enables shared experiences. At its core, Roblox is a gaming platform. On Roblox, you can jump into different games, worlds and simulations with your friends, family, and millions of other players in the same experience together. There are thousands of different experiences created by the community to explore.
Roblox is also a social media platform where you engage with your network inside these 3-D worlds and games. But what’s even more interesting is that the development of games is also social. When a team is working together on a project, team members can see what their teammates are designing. For example, in a Roblox team project, when one designer places a bridge in the game, their teammates will see that bridge placed in the game real time.
What makes Roblox unique is its development community. It’s easy for anyone to start building a game on Roblox. My son and I built a zombie game in a few days without much difficulty. In our game, you run away from zombies while avoiding lava flows. Many of the game’s assets were developed by the community for any developer to use. Though it is easy for anyone to make a game, some of the top games have millions of players. Developers can earn millions of dollars which allows them to build their own businesses around Roblox. For example, Redmanta is a developer studio that creates content exclusively for Roblox.
The key to Roblox is community. The developers and users interact in one community to build and experience imaginative new worlds together.
Is Roblox Safe for Kids?
From my experience, I would say yes… kind of yes. I am fine with my six-year-old son playing Roblox. But he can only play on the desktop in the living room with the monitor facing out towards the living room. That way mom and I can monitor the games he is playing to make sure they are appropriate. For example, one game he cannot play is called “Piggy”. This is a game where an anthropomorphic killer pig chases you around a scary setting. Very popular, but not appropriate for my six-year-old. A game that is appropriate for my six-year-old is called “Pet Simulator”. This game just happens to be the most popular game on Roblox per Statista with 23 Billion visits as of July 2021.
In this hilarious simulation, you buy pets and these pets mine chests for gold. This gold is used to buy new and better pets. This simple concept of a game is played by millions with many of these users interacting together in this experience. New content for this game is added monthly. Videos of people playing pet simulator can be found all over YouTube as it is a very popular game to stream and watch.
Let’s Talk Numbers
In God we trust, everyone else bring data. And Roblox brought the data. There are three metrics that really matter as we go through Roblox’s recent quarter results: Revenue, Daily Active Users, and Total Hours Engaged. We also need to keep an eye on EBITDA and its recent sell of $1 Billion in loans. You can find this data on the Roblox Investor Relations website.
Revenue
Make more money right now! As of November 2021, you’re paying $30 for every $1 of Roblox revenue. To give perspective, you currently pay $4 for every $1 of Amazon Revenue. However, Roblox’s revenue is increasing at a rate of 100% per year. So, is $30 for $1 of revenue worth it? In the short term there is likely to be a pullback as this seems historically high. However, such a pullback may just be blip, so though the price may be rich right now I do not think its overvalued if you’re looking five to ten years out. For a company with vast growth potential this price may just be a steal.
Daily Active Users
Simply put, daily active users is the number of users that are using Roblox every day. This metric is simple to assess: it must keep going up. One slip and alarms must sound.
Hours Engaged
11 billion hours of humanities time was spent on Roblox simulations last quarter! We are already in the Matrix my friends! Same basic principle as daily active users: this metric must continue up or investors need to be concerned.
The Billion Dollar Loan
Roblox sold $1 Billion worth of notes in October 2021. What does this mean? Is this bad? So worst case scenario, this is a big cash infusion that lets the Roblox team build a lot of stuff that could just go nowhere. In our Roblox Investor Day section I’ll discuss how this capital is focused on improving the community experience. A happy community will translate into an improvement of the top line. Nonetheless, this is a lot of debt to take on. What may really be happening is that Roblox insiders are confident in Roblox and would rather take out a loan instead of selling more of the company.
Investor Day
At the Roblox Investor Day, Roblox CEO David Baszuckithe and his team showcased the new and upcoming innovations Roblox is creating to its investors. It was a four-hour long stream, so to save you time, I watched all of the investor day video. You can watch it as well here. Overall, I ended the video feeling confident in Roblox and in how they plan on expanding the Roblox audience and experience.
Updates to Avatars
Roblox avatars are your character when you’re playing a Roblox experience. You can change your characters clothes, hair, or even add wings, hats, or other accessories. In the Investor Day presentation, the Roblox team went into excruciating detail about their next iteration of the Roblox avatar. Their past avatar had clothes painted over the character. New avatars have a standardized API that is more of a skeletal structure instead of a combination of blocks.
Clothes and accessories will fit on the avatars regardless of model. The community designs all this wear, and what was interesting was that when you design a sweater it will fit on a human model, a dragon model, or a bipedal turtle model. The standardization of these models while still allowing an infinite design space is fascinating. As an investor, you may scratch your head on why someone’s avatar matters, but it matters to the Roblox community. Your avatar represents an expression of you. It’s a very good sign they are deep into the needs of their community.
One jacket to rule them all! One jacket designed by a developer can fit on a variety of different avatar types.
Safety and civility
The Roblox team kept saying Roblox is safe for kids, so it must be true? You can tell they were coached to be on theme as different leaders from multiple disciplines kept stressing this point. I know from a parent’s experience that Roblox can be the wild west of content, but they are throwing a lot of technology at safety and civility including artificial intelligence and advancing human monitoring processes. I like that they know a weak spot in their business plan and are putting effort into resolving these issues.
Same Roblox Experience Regardless of Device
Are you on the desktop, tablet, phone, or a TV? Roblox wants you to have the same experience in a game regardless of the device (including virtual reality). This means developers only design for one experience instead of multiple devices. As a programmer myself I can tell you what a headache it is trying to code and design for different devices. By standardizing the development process, the developer can now focus more on building the experience without having to worry about different platforms. I know from playing Roblox that the platform successfully creates the same experience for tablet and desktop. When I play Roblox with my son, we can seamlessly play together in the same experience while he is on his tablet and I’m on the desktop.
We’re Going Beyond the Typical Obby
If you played Roblox pre-pandemic, you know Roblox’s past was all about obbys. These are 3-D obstacle courses that were (and still are) extremely popular. Well, Roblox 2022 is pushing the boundaries of community games. These new games look amazing. Think about the best PS5 games and they are pushing into that territory. The difference though between a PS5 game and a Roblox game is scale: Roblox is about thousands playing together in a single experience. The Roblox team is pushing the boundaries of visualization on Roblox:
A New Way to Market
Of all the boldest statements, the marketing statement I believe was the boldest: “In the next 5 years, all brands will have a Roblox strategy.” The team leader said that in five years, most companies will need a Roblox marketing campaign. This may sound ridiculous, but Coke, Chipotle, and Gucci all have built their own advertising simulation in Roblox. These were Million-dollar campaigns and had serious engagement with the community. A bold statement indeed.
Final Thoughts
Roblox is facing a surge of growth and technological transformation. The company has an opportunity to disrupt not just the gaming industry but social media as well. They are a brand that will be relevant for the next twenty years as they’ve already become a big part of the lives of children all around the world. I purchased Roblox stock right after the IPO and I plan to not touch it for at least three to five years. And if every brand has a Roblox strategy by then, well I may need to hold for another five years after that.
I/we have a position in an asset mentioned