Last Updated: January 12, 2023
Have you heard of Roblox? The innovative online gaming platform that more than doubled its users in two years and climbed to the top of the app stores’ popularity charts?
The fast-growing company has recently gone public. Spurred by its success and investors’ sentiment, the shares were temporarily worth more than gaming giants EA and Take-Two. Are you considering joining the hype?
This article will outline the facts to help you decide whether Roblox is a sensible investment. And in case you made up your mind in favor of the company, you wouldn’t need to look elsewhere to learn how to buy Roblox stock. We’ve got you all covered.
About the Company
Roblox is a social platform and online storefront designed to allow users to program and play games developed by others.
The distinctive feature about Roblox is that it’s not a game itself. The corporation doesn’t even make games. Essentially, Roblox is a platform that facilitates programmers to churn out as gamers consume.
The company’s business model is built around Robux, a digital currency that gamers use to purchase unique items in-game. This is also how the developers earn money. Once purchases are made, they use a program known as the developer exchange to convert their Robux credits into real money and thus monetize their work. The developers can rake in as much as $1,000 a day.
Although gaming is Roblox’s core business, the platform also hosts celebrity concerts and virtual meet-ups.
Roblox was founded by David Baszucki and Erik Cassel in 2004. The platform went into beta in 2005 and was released in 2006.
Before Roblox, Baszucki had founded another company. In 1989, he built Knowledge Revolution, which dealt with education, physics, and mechanical simulation software. Soon after, Cassel joined Knowledge Revolution, where the two met. In 2004, they set up Roblox together, seizing an investment opportunity in the virtual gaming market, but also inspired by the creativity of kids using their programs.
Fast forward to now, the company is going from strength to strength. While many businesses took a severe beating from the COVId-19 pandemic, Roblox thrived. The company’s monthly users increased from 90 million monthly users in April 2019 to 202 million in April 2021.
This milestone coincided with another noteworthy event in Roblox’s history – its stock listing.
Roblox debuted on the New York Stock Exchange (NYSE) through a direct listing on March 10, 2021. Trading under the Roblox ticker symbol RBLX, its shares were priced at $64.50 apiece. That price point put Roblox’s stock valuation at over $41 billion.
On the eve of Roblox’s debut at The Big Board, NYSE set a reference point of $45, although no stock exchanged hands at that point.
Roblox had initially planned a Roblox public offering through a traditional IPO but deviated from that script by raising funds in January 2021 to minimize dilution. The company allowed its existing shareholders to dispose of their shares instead of raising fresh capital by offering equity.
The initial Roblox IPO was also derailed after the Securities Exchange Commission (SEC) raised concerns about the company’s revenue accounting.
Who owns Roblox?
The largest Roblox stock holders are:
- Altos Ventures Management, Inc, with a 14% stake
- David Baszucki with a 9.5% stake
- Index Ventures SA with a 9.2% stake
The mutual funds with the most significant shareholding in Roblox Corporation include:
- Morgan Stanley Institutional Fund Growth with a 1.65% stake
- Vanguard Total Stock Market Index Fund with a 1.56% stake
- T Rowe Price Global Technology Fund with a 1.15% stake
Should You Buy Roblox Stock?
Before deciding to go ahead with plans to buy Roblox stock, there are several factors you should consider. These are:
- RBLX stock price performance
- The company’s corporate governance
- Potential red flags
Roblox stock performance
Roblox’s stock price per share stood at $66.81 on February 12, 2022. This put the company’s market capitalization at $38.7 billion.
But let’s track the Roblox stock history:
- Roblox’s all-time high closing stock price was $134. 72. This was recorded on November 19, 2021.
- The corporation’s 52-week high as February 13, 2022, was $141.60.
- The 52-week low as of February 13, 2022, was $53.63.
- The average Roblox stock price recorded over the 52 weeks ending February 13, 2022, was $83.88.
Like most public companies, Roblox took a beating from the Federal Reserve’s decision to revise interest rates in November 2021. Roblox’s stock fell from the $103.16 booked in December 2021 to $65.86 in January 2022 and $70.48 in February 2022. Child safety concerns further rocked the corporation in January 2022.
Roblox stock forecast
Despite the recent hiccups, Roblox stock had not been subjected to significant downgrades.
Roblox stock target price targets have been set at:
- A high of $136.00
- A low of $45
- An average of $92
This indicates that analysts are optimistic about its performance over the next 12 months.
Is Roblox overvalued?
Many analysts (and some metrics) suggest that Roblox stock is trading at a premium, as the company is yet to prove profitable. However, its long-term potential to be a metaverse player makes it an attractive investment for many who believe now is the time to buy into the company.
Matt Frankel CFP, an analyst and a registered investment advisor with Frankel Wealth Management, is convinced that Roblox’s stock is valuable because of its solid growth prospects. In an interview with the Motley Fool, Frankel dismissed the idea that Roblox stock is overvalued.
Speaking of profitability, Roblox recorded an 82% growth in revenue to $924 million in 2020. This was up from the $508 million booked in 2019. The San Mateo-based organization has also recorded an increase in revenue in every quarter for the last five years.
The quarterly revenue range has seen;
- A maximum of $509.3 million in September 2021
- A minimum of $147.61 million in December 2019
- An average of $302.7 million
- A median of $281 million
Aspiring Roblox investors should be aware that the company pays developers 30% of the revenue it makes from virtual purchases.
This is one of the main reasons the company has booked negative operating income as outlined below.
- -$424 million in the last 12 months
- -$226.1 million in 2020
- -$76.4 million in 2019
- -$87.5 million in 2018
Roblox has also posted negative net annual income for the last three years.
- -$253.25 million for 2020
- -$71 million for 2019
- -$88 million for 2018
So how is Roblox doing financially?
The company is yet to report any profits. Thus, analysts have given Roblox a dim earnings growth outlook. Data by Yahoo Finance shows bookies have earmarked Roblox’s earnings to tumble over the short term. By -18.20% in the fourth quarter of 2021 and -79.20% by the end of 2022.
Despite the lack of profits, Roblox has recorded consistent growth in total assets since 2018. The figures were as follows:
- $3.27 billion at the end of the third quarter of 2021
- $1.84 billion for 2020
- $760.2 million for 2019
- $542.4 million for 2018
An Investors Business Daily (IBD) stock checkup shows the RBLX stock scores a weak 36 out of 99 IBD composite rating. The metric used to scout top growth stocks.
When metaverse stocks were being hyped in October and November 2021, Roblox’s valuation peaked at 22-24x sales.
Following a correction, the Roblox ticker traded at 14.2x sales on February 10, 2022.
Free cash flow
Roblox investors might be encouraged by Roblox’s growing Free Cash Flow (FCF) range.
In the last five years, the corporation has recorded:
- A maximum FCF of $599.30 million in September 2021
- A minimum of $411.22 million in December 2020
- An average of $529.31 million
- A median of $553.36 million
Return on assets
One aspect of Roblox’s financial performance that Roblox stockholders could interpret as a red flag is its consistent negative Return on Assets rate.
This means that the company is struggling to leverage its assets to generate a profitable return.
Roblox RoA stood at:
- -14.79% in the third quarter of 2021
- -19.75% in the second quarter of 2021
- -26.93% in the first quarter of 2021
- -54.98% in the fourth quarter of 2020
Price to Earnings Ratio
As of February 12, 2022, Roblox’s Price to Earnings Ratio (P/E) actuals and estimates were listed as follows;
- Actual P/E stood at 0.07 in 2020
- 2021 P/E estimates stand at -76.79
- 2022 P/E estimates stand at -83.51
- 2023 P/E estimates stand at -77.69
Debt to Equity Ratio
Investors are likely to be encouraged by Roblox’s low Debt to Equity Ratio, which shows that the company is not reliant on debt to sustain its operations.
At the end of the third quarter of 2021, Roblox’s D/E ratio was 0.00.
The company had also posted the same D/E ratio for the previous three quarters.
Earnings Per Share
Overall, the Roblox stock market performance indicator that stands out is its Earnings per Share (EPS). It sits unfavorably compared to industry peers.
According to an analysis done by Macroaxis, Roblox Corporation’s EPS of -1.0 times is 140.98% lower than the communications service sector. It’s also significantly lower than the electronic games industry.
To put this into perspective, the EPS of all US stocks is 132.05% higher than Roblox.
Remember the adage: Never put all your eggs in one basket?
How the stock market moves is not easy to predict. Therefore, it’s advisable to spread the risk by investing in different industries, geographies, and demographics.
The rationale behind this is to insulate yourself from a sharp decline in one sector.
This is achieved through betting on the probability that if industry X faces a downturn, industry Y will offset that shock.
Roblox also brings another diversification dynamic to the table – a unique target audience. Almost half of Roblox’s 202 million monthly users are under 13. This means if the tastes and preferences of an older audience shift, the Roblox share price is unlikely to be affected since its target demographic is different.
Roblox also has a high potential for growth that coincides with the takeoff of the much-hyped virtual reality (metaverse) industry.
However, it must be noted that most analysts remain coy on the gaming company’s short-term prospects. Most view it as an investment for the long term.
How to Buy Roblox Stock
There are two main ways to add Roblox stock to your portfolio. One of them is going through a licensed broker. The other route is through a financial advisor who will guide you on the procedure.
Roblox doesn’t offer a direct stock purchase plan.
Online brokers/ trading platforms
The emergence of online brokerage firms that don’t charge commissions on transactions has been a game-changer. It’s easy to open an account with an online stockbroker, making it the most tech-savvy and convenient option.
As a first-timer interested in trading Roblox shares in the stock market, it’s always best to start small and build on “little” wins.
Make sure you comb through reputable sources to assess Roblox’s market performance. This includes keeping an eye on Roblox stock price predictions. It also entails studying what analysts have picked as the top stocks to buy. This will allow you access to knowledge that will help you decide whether to buy Roblox stock or wait.
Below are the steps you should follow to access Roblox stock via an online stockbroker.
Step 1: Picking a Broker
Several essential factors determine the right stock broker for you. These include commissions and fees, access to additional markets, and the type of account you prefer.
Some of the top online brokers include:
- TD Ameritrade
- Charles Schwab
Step 2: Opening an account
Once you have settled on a broker, the next step is opening an account.
The process of opening an account is pretty straightforward. Most brokers only require you to provide your personal information and proof of identification.
Step 3: Authenticating your identity
You will then need to prove it’s you on the other end of the line. This is done by providing details such as your social security number, passport, or any other form of ID document.
Step 4: Choose withdrawal options
The main goal of dipping into the market is finding suitable investment options to yield the best returns.
You can’t do that without choosing the appropriate withdrawal option.
Step 5: Depositing funds
Some brokerage accounts like TD Ameritrade, Robinhood, Ally Invest, Charles Schwab, and SoFi don’t have a minimum balance requirement. Others like Acorns do.
Depositing funds electronically is easy and can be completed via wire transfers, debit cards & credit cards. This can also be achieved through payment solutions such as PayPal.
Steps 6 & 7: Research & Choosing the Right Entry Point
Even the most experienced and savvy traders conduct thorough research before investing in stocks.
What does that tell you?
You will need to do your homework on the Roblox stock. This will include tracking the RBLX share price.
It will also become necessary to delve into technical analysis. You will need to study the company’s earnings and have a peek at the Roblox stock forecast.
Step 8: Executing the trade
Armed with the correct information, choose the Roblox stock ticker RBLX. Hit the initiate button and become a Roblox Corporation investor.
Hiring a financial advisor could be the difference between make or break for an investor, especially if you are new to stock market trading.
Whereas online material is abundant, self-tutoring cannot compare to the wealth of knowledge and experience certified financial advisors possess.
A financial advisor will explain how stock trading works before narrowing down on specifics like how to buy Roblox stock
The financial advisor will guide you on:
- The right times to buy Roblox stock or sell
- Diversification of your investment pool
- Straying away from sentiment and making decisions based on logic
- General investment advice and spending tips
- Technical insights such as leveraging order types to protect investments
Although financial advisors charge a fee for their services, hiring one saves you time and money.
It also helps you get a good night’s sleep instead of tossing and turning in bed worrying about being wiped clean. Having a professional in your books gives you the reassurance you need.
Who would have thought that a company that counts children as its primary revenue generator would be a $40 billion behemoth today?
There are many examples of companies that were touted as the next big thing only to flame out into obscurity. Take Myspace, for instance. Would anyone have put their money on Roblox over the social media network in 2005?
See, that’s the thing about companies and growth. Nothing is ever guaranteed.
Roblox has created a unique business model that analysts are optimistic about over the long term.
Therefore, an investor who researches how to buy Roblox stock while studying its metrics closely gives themselves a much better chance to succeed.
Hopefully, that’s you.
You may also be interested in:
Roblox is one of the most exciting stocks worthy of every investor’s eye.
With tech companies banking on virtual reality worlds (metaverse) as the next business frontier, the company could be on the cusp of the next big thing.
Growth is also strong on the financial side of things. The company has reported an uptick in revenues for the last three years.
However, if you are a dividend-conscious investor, Roblox is not the stock for you. The company doesn’t make any payments to its shareholders yet.
Roblox’s stock symbol or ticker symbol on the New York Stock Exchange is — RBLX.
The price of Roblox stock keeps changing as dictated by market conditions. Roblox’s shares traded at $70.63 apiece on February 11, 2022. On the same day, Roblox stock market cap was $40.7 billion.
In terms of share price predictions, analysts’ stances go from a high estimate of $136.00, to a low of $45, with an average of $92.
As a retail trader, you can buy Roblox stock at any time of the day.
The New York Stock Exchange (NYSE) operates between 9:30 am and 4:00 pm Eastern Time (ET) when regular trading takes place. However, retail traders can continue trading after 4:00 pm through online brokers. This is what is known as after-hours trading.
As captured in our detailed How to Buy Roblox Stock guide, you can invest in the company through an online stockbroker or a financial advisor. There’s no direct stock purchase option.