The Roblox (NYSE: RBLX) share price is 178% higher than its March IPO price of $45. The company chose a rare direct listing, where no new shares are created, but instead current investors become able to sell their existing shares on the open market.

On its first day of trading, the stock shot up 54% to $69.50, eventually rising to $100 by 4 June. After falling to $70 by 8 October, it then rose to a high of $135 by 19 November. As generic fears over the Omicron variant and potential interest rate rises rose, it dipped once again. But at $125 right now, it could skyrocket soon.

Roblox share price: Q3 results

In excellent Q3 results, revenue increased by a whopping 102% to $509.3 million compared to the same quarter in 2020. Net operating cash hit $181.2 million, while free cash flow increased 7% to $170.6 million.

Meanwhile, bookings increased by 28% to $637.8 million, while average daily users rose 31% year -over-year to 47.3 million. And hours of engaged gameplay rose 28% year-over-year to 11.2 billion.

CEO David Baszucki commented that ‘engagement is our north star.’ He further said ‘we are happy to report that the developer community earned over $130 million in the quarter and is on pace to earn well over $500 million this year.’ He highlighted that the company would ‘continue to invest in innovative technology to…build and create.’

Unlike its competition, Roblox users can create their own in-universe games. Currently, developers get 26.9% of the proceeds generated by players, for example from the sale of custom outfits and avatars. These items are bought with the in-game currency, Robux`— and the most popular subscription for 1,000 Robux costs £8.99 per month. This gives a financial incentive to create ever better games and fuel organic user growth.

CFO Michael Guthrie highlighted the company’s strong financial growth, ‘despite lapping Covid-impacted periods and back-to-school seasonality.’ Regarding Q4, he said ‘we appear to be having a great start to the last quarter of the year.’ And encouragingly, Morgan Stanley analyst Brian Nowak has put a $150 target on the stock.

The Roblox metaverse

Depending on who you’re talking to, the metaverse is either the next evolutionary phase of the internet, or an overhyped, ill-defined virtual reality hypothesis. Regardless, it’s been latched on to by Facebook, which rebranded its corporate name to Meta in July. The core idea is that it’s a 3D internet that spans both the physical and virtual worlds. For example, instead of messaging online, people would meet up with their avatars in a virtual space, to do everything from banking, to shopping, to socialising.

And Roblox’s avatar-based developer-focussed strategy gives it a huge head-start in this new space. It’s already partnered with Nike to develop its own platform called NikeLand. Shoemaker Vans and car manufacturer Hyundai are both using Roblox to advertise their products. In June, Warner Bros. created a Roblox-based rendition of the Washington Heights neighbourhood in New York that served as the setting for its musical ‘In the Heights.’ Players were able to explore the set and talk to characters in the film.

Yesterday, Ralph Lauren launched its own Roblox holiday-themed experience, with a gender-neutral digital clothing collection to explore. Christina Wootton, vice president of global brand partnerships at Roblox, commented ‘anyone can try exclusive fashion items and even influence what this environment looks like based on their participation and daily voting results. This is the kind of innovation and co-creation that the Roblox platform and technology enable.’

Moreover, because the game has a PEGI 7 rating, it’s suitable for younger players who could potentially play Roblox forever. But Keybanc analyst Tyler Parker believes that ‘aging up the platform remains a key opportunity that remains challenging’ as older users find different ways to spend their money. However, on its Investor Day on 16 November, the company demonstrated that the fastest-growing cohort on the platform is 17–24-year-olds, and that it’s also retaining more of its aging clientele.

With an older user base with access to disposable income, and company partnerships eager to explore its metaverse potential, the Roblox share price might have much more potential than it appears at first glance. Of course, if the metaverse fails to materialise, the company could lose value fast.

Go short and long with spread bets, CFDs and share dealing on 16,000+ shares with the UK’s No.1 platform.* Learn more about trading shares with us, or open an account to get started today.

* Best trading platform as awarded at the ADVFN International Financial Awards 2021

Charles Archer | Financial Writer, London
10 December 2021