Sometimes I sit back and try to take in how quickly the world moves. I had to do this recently after doing research into the metaverse, a term that’s increasingly being used in conversation. As part of the metaverse, which is essentially virtual reality, there’s growing demand from investors to get a piece of the action. One listed company I think could benefit is Roblox (NYSE:RBLX). Here’s why I’m thinking about buying Roblox shares now.
What Roblox does
Roblox is an online gaming platform. Importantly, it also allows users to create games using Roblox’s proprietary system. In fact, it has over 50m different games that can be played right now.
The company started out in 2006, but really saw growth accelerating during the pandemic. This is logical, given the lockdowns and time we all had to spend at home. Roblox is child-friendly which is another reason for the large growth, as the social aspect of gaming together has picked up.
After strong growth during 2020, it went public in early 2021. Roblox shares were set at $45, and rallied in the initial aftermath. They currently trade at $124, meaning that I’d have almost tripled my investment within a year.
A brave new world
The vision for buying Roblox shares now is less to do with its finances and profit/loss and more about the trend towards the metaverse. I’ll hold my hands up and say that I’m by no means an expert on the subject. However, it’s clear that many smart people are investing a lot of time and money in this sector.
For example, Facebook has completely rebranded to Meta pivot to virtual reality, with CEO Mark Zuckerberg being a huge advocate. Another case is Nike. Only last week it was announced that Nike has created Nikeland within Roblox, allowing players to kit out their avatars in Nike products.
The very nature of Roblox is that it’s a virtual world, in which anyone can create anything (within reason). The ability for players to create different games within the system naturally helps the company to get bigger. If we continue to see large brands get involved in this space then it should benefit Roblox shares. Higher user participation, larger spends and greater publicity are all positives here.
Risks to be aware of
I see a couple of risks in this area though. Firstly, Roblox is losing money. In fact, the latest Q3 results show that in the nine months through to the end of September, it lost more than in the same period last year. This was a loss of $348m in comparison to the 2020 figure of $194m.
Secondly, could the whole metaverse play simply be a fad? If it is, then investors could quickly move on to the next big thing, leaving me holding shares in Roblox at a loss.
But I’m still strongly considering buying shares in Roblox as a play on the metaverse growth in years to come.
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Jon Smith has no position in any share mentioned. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. The Motley Fool UK has recommended Nike. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.