2021 has already seen a large amount of retail participation in the stock market. Examples include Second Sight Medical Products (which I wrote about here), along with other names including GameStop and AMC Entertainment. However, these have all been stocks that have been listed on the market for a while. This week, Roblox (NYSE:RBLX) went public. It too has sparked a lot of interest from retail buyers like me. With the Roblox share price gaining 8% on the first day of trading, what’s my game plan?
What’s the story?
Many of us here in the UK might not have heard of Roblox. It’s a US-based company that acts as a gaming platform. It also allows users to programme and create their own games on Roblox. In this way, users can come and either play games, or help to create new ones. Revenue comes from in-game purchases.
The brand has grown massively in popularity over the past couple of years, but particularly over the pandemic. More time in front of a screen has enabled Roblox to gain players and creators alike. In late October, it was reported that the iOS app version of Roblox had passed $2bn in lifetime spending from users! $500m of this had been made in just five months during 2020, showing the growth and also the impact of the pandemic.
The growth meant that going public was a logical decision to enable further business progression. The Roblox share price was set at $64.50, and rose as high as $74 in early trading yesterday before closing slightly lower. Even at the closing price, it still meant the company was valued at over $38bn!
Are Roblox shares fairly valued?
Considering the usual overinflated US tech share values, I think Roblox offers good value. Only a few months ago, a private funding round saw over $500m being raised, which valued the firm just below $30bn. Given the high growth rate of the business, I think the company could easily grow to be worth more than the current valuation.
In terms of financials, revenue through to the end of Q3 2020 grew 70% year-on-year. More detailed financials will be available in the coming months as the company has to provide a trading update to investors. From my point of view, if revenue can continue on the same trajectory even for the next couple of years, this would support the Roblox share price to move higher.
The main risk I see to the Roblox share price is that it could just be a passing fad. The gaming platform isn’t totally unique (even with the game creation element). Over the years, I’ve seen different gaming sites come and go as interest fluctuates. Another risk is that a lot of the recent buzz has been due to people being in lockdown. When lockdowns end, Roblox may experience user exits as people spend more time outside or in other pursuits.
That said, I do like the company and would buy. I’d still give it a few days for the Roblox share price to settle though, but am looking to buy the stock within the next couple of weeks.
