There are several reasons to be optimistic about the future of Roblox (NYSE:RBLX) stock at this time. The growing company’s recent results have given rise to some hesitation, but these results can be seen as a minor hurdle down the road.
It’s a good place to start discussing the company that created a virtual sandbox for users. This virtual sandbox is a collective platform that allows users to explore 3D worlds developed, built and published on the company’s cloud infrastructure.
Although Roblox posted growth as measured by numerous metrics in its August 16 earnings report, stocks immediately fell. The good news is that the price drop was only temporary.
The stock price fell from $ 79 to $ 75 following the announcement that net bookings reached $ 665.5 million, lower than the $ 683.3 million expected by analysts. Net bookings are also referred to as deferred income, essentially a liability and payment for future services or goods.
Still, for Roblox investors, the overall news is positive. RBLX stock retraced those losses in less than a day and has since moved above $ 82.
This is a strong sign that investors remain positive about Roblox’s trajectory going forward. Part of the reason is that Roblox continues to grow rapidly despite the disappointment of net bookings.
The company’s revenue increased to $ 454.1 million in the second quarter, an increase of 127% year-over-year. Still, it should be noted that Roblox is a growing business, and growing businesses have specific issues.
Namely, they tend to multiply rapidly not only in turnover, but also in losses. Roblox’s losses have also worsened. Although revenue increased 127% in the second quarter year-on-year, net losses increased 97.79% during the same period.
The optimist in me says that at least the growth in income has exceeded the growth in net losses. Either way, the market was only temporarily put off by the news, and Roblox stock prices are now higher.
I believe the reason is that Roblox fits well in a growth zone. Investors should remain passionate about RBLX stock as it is part of a larger emerging trend.
Roblox is a central player in an emerging trend called the metaverse. Metaverse refers to a vast online world spanning multiple technology platforms where users share virtual spaces through avatars.
Roblox is a big part of the emerging conversation around the trend with big names in tech like Facebook (NASDAQ:FB). A recent Wall Street Journal article notes that: “Enthusiasm for the concept has also helped boost the valuations of companies like Roblox.”
Facebook CEO Mark Zuckerberg said he sees the metaverse as the successor to mobile internet. He sees it as a space in which users can play together, socialize, play together and work.
Companies are interested in the raw business potential underlying the metaverse.
Last May, Roblox hosted a virtual experience celebrating the 100th anniversary of fashion designer Gucci. In the event, users could purchase limited edition items for their avatars. It is very easy to imagine a future in which users will spend increasing amounts of real money to equip their respective avatars with digital brands.
To take with
Wearing Gucci flip flops in the real world when you step out of your Bentley? Maybe in the future you can flex in a digital world where you ride in the same Bentley wearing the same Gucci flip flops. Do you just want to pretend in the metaverse? It’s good too. And brands will earn more and more money from this idea in the near future.
If this sounds too strange to be real, think again. A Forbes article published in January is quite accurate when it postulated that: “The next Coco Chanel in the world is probably a 10-year-old girl who is currently designing avatar skins in Roblox.
So, forget what has been called a disappointing earnings report and understand that Roblox is a real force with huge potential and a well-developed platform.
At the time of publication, Alex Sirois had (neither directly nor indirectly) positions in the securities mentioned in this article. The opinions expressed in this article are those of the author, submitted to InvestorPlace.com Publication guidelines.