Roblox stock is a buy opportunity on Metaverse Growth (NYSE:RBLX)

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My main portfolio is my dividend growth portfolio. I analyze dividend-growing companies that fit the strategy and also publish a quarterly update regarding my portfolio’s performance and holdings in an effort to be as transparent as possible with my readers. In addition to my dividend growth portfolio, I also hold a small Roth IRA portfolio focused on growth stocks.

In this portfolio, I hold stocks, ETFs and mutual funds across all sectors that focus on growth stocks of all market caps. In this article, I’ll analyze my favorite Metaverse stock, and probably one of my favorite growth stocks, especially after stocks fell recently when volatility was high. This company is Roblox (RBLX).

I can’t analyze the business using the same methodology that I use to analyze dividend growth opportunities. However, I will use the same roadblocks that I use when analyzing other stocks. I will examine the fundamentals, valuation, growth opportunities and risks of the business. I will then try to determine if it is a good investment.

According to Seeking Alpha’s company overview, Roblox Corporation develops and operates an online entertainment platform. It offers Roblox Client, an app that lets users explore 3D digital worlds, and Roblox Studio, a set of tools that lets developers and creators create, publish, and operate 3D experiences and other content. The company also provides Roblox Cloud, a solution that provides services and infrastructure to power the human co-experience platform.



Revenue is the first metric I look at when it comes to growing businesses. The risks inherent in growing businesses should be mitigated by rapid revenue growth. Roblox has seen a significant increase in revenue over the past year as sales have doubled. Sales growth came from an increase in the number of daily active users as well as an upgrade of plans acquired by users and developers. The company is focused on organic growth, and analysts at Seeking Alpha estimate the company will continue to grow at over 20% per year.

Roblox income
Data by YCharts

While the company is increasing its revenue, it still hasn’t found its way to profitability. The company invests heavily in its product through R&D expenditures, development costs, and its infrastructure. All of these are growing more slowly than revenue and therefore the business is expected to achieve profitability in the medium term as revenue continues to grow faster than expenses.

Roblox EPS
Data by YCharts

Although the business is not profitable, due to amortization of past expenses, the business produces a positive FCF. The company has been doing this since Q4 2019, and since then FCF has grown significantly and reached an all-time high of $170 million in Q3 2021. A growing company that can post positive free cash flow will not shouldn’t be taken for granted, and it shows how strong the company’s prospects are as it generates cash while growing so rapidly. The positive FCF also prevents it from relying on the debt and equity markets to raise funds.

Roblox Free Cash Flow Per Share
Data by YCharts

Roblox doesn’t just create cash flow, it also creates it with big margins. Its FCF margin is above 20% and its adjusted EBITDA margin is 25%. The company’s margins are impressive as other peers struggle to become profitable, the company enjoys a high level of profitability, which shows resilience and the company’s position is strong, as it can wither price competition or increase spending to grow even more.


The company is trading at around 10 times its forecasted 2022 sales, and as a result, it is by no means cheap. The company’s price has dropped 50%, but the valuation still isn’t cheap. However, when considering the company’s growth rate, it’s a more promising story for investors.

The graph below from shows that the company is trading at 60 times its FCF in 2021 and 2022. While this valuation is not cheap when sales are growing more than 20% per year, this difficult valuation has meaningful despite the significant risks involved. with so little safety margin.

Roblox Stock Analysis

To conclude, Roblox is your best growth company. The company is increasing its revenue, but unlike most of its peers, it is also increasing its free cash flow. Investors who buy shares of Roblox will benefit from future growth, and they will buy it for a high valuation which can be justified if the vision of Roblox is realized in the medium to long term.


The Metaverse will serve as a growth platform for Roblox. Unlike some peers who are only beginning to pay attention to the metaverse as a concept and the ability to move a growing part of our lives online, Roblox is ready for that growth. It already has a development platform, it has the experience, and most importantly, it has an existing user base with daily active users approaching 50 million worldwide and continuing to grow at a double-duty rate. figures. This existing platform, ecosystem and customer base will be the building blocks of the Roblox Metaverse vision.

In the long term, the vision of brands is exactly the same as that of games or gaming experiences, in that we imagine an ecosystem where there are thousands and thousands of these experiences. They are created in concert between brands and possibly communities of creators and developers. But just like 16 years ago, game experience gains were new to Roblox. This is relatively new for some of them.

(David Baszucki, CEO of Roblox, Third Quarter Earnings Call)

Improving profitability is another important opportunity. Usually, when investors buy growth stocks, they are taking immense risks to buy future cash flows that will materialize. Roblox is unique in that the company is already achieving positive free cash flow which is increasing significantly. Despite negative EPS as the company is still investing heavily, the positive cash flow makes it much less susceptible to market volatility and gives investors a solid foundation to build on.

Roblox Free Cash Flow Trend

Revenue from Roblox Q3

The company has been building this platform for 16 years. After a long investment, the company is now ready to capitalize on the favorable winds of the gaming industry and the world of communication. Growing crowds for the games, especially young people, are turning into a community. This community is growing as fiber optics and 5G technologies increase the availability of fast internet, coding and gaming become more popular, and investors take interest in the metaverse. Combining Roblox products with real-world trends will drive future profits forward.

We have been building this platform for over 16 years. And one of the keys is that it’s powered by user-created content, millions of creators who do everything on Roblox. As we have grown, as we improve the quality of our personalized search and discovery, more and more, users of our platform are finding incredible content that is perfectly matched to what they are looking for. And our community of creators is very responsive to the wants and needs of the gaming community.

(David Baszucki, CEO of Roblox, Third Quarter Earnings Call)


The metaverse is still a concept that has nothing tangible to show. The internet infrastructure in the western world can finally support this idea and move more use cases online, but there are still no real use cases. Nobody knows what the Metaverse will look like, what consumers want to adopt. So far, we have many visions that can turn into successes, but nothing is guaranteed, and it’s far from monetized.

The second risk is the margin of safety. The business generates true free cash flow, which means investors face less risk. However, the current price at FCF is still high at 60. That’s not high given the growth forecast, but if for some reason the business isn’t able to continue growing, let it be the competition or consumers not adopting his vision, the valuation that may make sense at the moment will be outrageous and a quick correction may occur.

A third risk is a systematic risk that has nothing to do with the operation of the business, but which can affect investors significantly. The Federal Reserve will raise interest rates. This is almost an accepted fact by almost all investors. A faster-than-expected rate increase could hurt the company’s valuation. The discount rate will rise rapidly, and with the current valuation, investors could see prices fall in the near term even if the company is performing extremely well.


Roblox is a big company with great growth prospects. The company has increased revenue and is generating free cash flow from revenue. The company’s valuation, while high, is justifiable given future growth and positive free cash flow.

The big question mark regarding Roblox is the Metaverse. If this materializes and Roblox manages to add its vision, there is room for significant growth. If you believe that more of our lives will migrate online thanks to better internet infrastructure, then Roblox will continue to perform well and grow in revenue and FCF. I’m bullish on Roblox after it dropped over 50%.

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