![]() This social network loop aspect of Roblox is also a huge competitive advantage for the company, as players want to play the games that they create with their friends, and it tends to make Roblox very sticky. More friends and better experiences drive even more players to join. ![]() The value of the Roblox platform increases to an individual when more of their friends play together. In Roblox's social network loop, players will play games with their friends, then invite even more of their friends to play the games which drives organic growth. The better experiences result in even more players, higher engagement and more spend, which in turn attracts new developers and creators, while incentivizing existing creators and developers to create even more and higher quality experiences. The content attracts players which pay for the content, which allows developers to both make a living and reinvest the money they make into building better experiences. In the content loop, developers and creators are the prime engine of growth by creating the content that powers the platform. There are two viral growth network effects associated with the platform, with one loop centered around content and the other loop centered around a social network. Growth on the Roblox platform is largely organic and largely operates through word-of-mouth. Roblox uses a freemium model, where games are free to play but advanced features and customizations are only unlocked through paying with an in-game currency called Robux, which can be purchased either through gift cards, ala carte or through subscription. Let me give a brief explanation on how the Roblox is monetized. In fact, at least part of the reason that I think Facebook (FB) changed its name to Meta and branded itself a Metaverse company is because I think Mark Zuckerberg sees the potential of Facebook getting disrupted by Roblox. ![]() The upside in Roblox is potentially being larger than Facebook is today, if the company is successful. The concept of the Metaverse or a human co-experience platform is still a very speculative idea but if Roblox successfully gets a Metaverse platform up and running worldwide, it will stand to gain significant first mover advantages and could totally replace today's major social networks like Facebook. Roblox's mission is to build a human co-experience platform that enables billions of users to come together to play, learn, communicate, explore and expand their friendships. The company's end goal is to have all human experiences that can be imagined to be available to be experienced with friends and family on the Roblox platform. Roblox was designed almost from the beginning to be a human co-experience platform, which is now being more commonly called the Metaverse. However, if that was all there was to Roblox, then it would not likely be trading at a PS ratio of 40. Roblox started off simply as a platform where users could play games created by other users and share their own game creations to be played by others. Roblox was further propelled upwards by excitement over the company's future initiatives after the Roblox Investor Day on November 16.Īfter such a massive move, that now has the stock back to trading at 40 times sales, investors might be wondering whether or not to chase the stock higher after such a huge move in a short period of time.ĭata by YCharts Reasons Why Roblox is Still a Buy The stock essentially stagnated by bouncing around between $70 and $90 until November 9th when the stock shot up 42% after reporting very strong Q3 earnings. However, on June 15, Roblox released its May 2021 Key Metrics and the stock dropped 8% because of the perception that growth was slowing. The stock traded as high as $103.87 intraday in early June because of investor excitement over the possibility that Roblox could evolve into one of the first Metaverse companies. Roblox ( NYSE: RBLX) came public on March 10 of this year at an initial IPO price of $64.25, while ending the day up $5 at 69.50.
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