Should you buy Roblox stock? Feb 2023
- 5 months ago
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Roblox has been public for less than 3 years and its share price performance since the IPO has been quite disappointing. The IPO price was set at $70/share and today, the price is down around 40%.
As a video game company, Roblox attracts almost 60m Daily Active Users (DAUs) with almost 45% of them being under the age of 13. It also attracts developers who contribute on the platform and get paid for their efforts.
The growth of Roblox through the lens of revenue has been nothing but impressive, growing from $325 million back in 2018 to $2.2 billion for the full year 2022. However, revenue growth is clearly slowing down. Revenues grew 82%, in 2020, 108% in 2021 but only 16% in 2022.
The company did make over 500 million in free cash flow in 2021 but it’s clear now that the company was a major beneficiary of the pandemic.
Also, during the same period, gross margin has decreased from 23% to 16% and share-based compensation in 2022 was $589m, which is almost a quarter of annual revenue.
That aside, Roblox’s passionate user base and technology does give the company some leverage. It gets high levels of engagement and could well be an acquisition target for a larger tech company looking to gain a footing in the metaverse.
But, the 20 billion enterprise value means the company is valued at 9 times revenue or 58 times ebitda which would be a steep price to pay for any company. And the company is still several years away from profitability.
Combined with mediocre margins, Roblox doesn’t look like a compelling investment on its own. That’s why I give the stock a bearish rating.
Roblox has been public for less than 3 years and its share price performance since the IPO has been quite disappointing. The IPO price was set at $70/share and today, the price is down around 40%.
As a video game company, Roblox attracts almost 60m Daily Active Users (DAUs) with almost 45% of them being under the age of 13. It also attracts developers who contribute on the platform and get paid for their efforts.
The growth of Roblox through the lens of revenue has been nothing but impressive, growing from $325 million back in 2018 to $2.2 billion for the full year 2022. However, revenue growth is clearly slowing down. Revenues grew 82%, in 2020, 108% in 2021 but only 16% in 2022.
The company did make over 500 million in free cash flow in 2021 but it’s clear now that the company was a major beneficiary of the pandemic.
Also, during the same period, gross margin has decreased from 23% to 16% and share-based compensation in 2022 was $589m, which is almost a quarter of annual revenue.
That aside, Roblox’s passionate user base and technology does give the company some leverage. It gets high levels of engagement and could well be an acquisition target for a larger tech company looking to gain a footing in the metaverse.
But, the 20 billion enterprise value means the company is valued at 9 times revenue or 58 times ebitda which would be a steep price to pay for any company. And the company is still several years away from profitability.
Combined with mediocre margins, Roblox doesn’t look like a compelling investment on its own. That’s why I give the stock a bearish rating.