Roblox & The Metaverse
The company is trying to do something big. Will it succeed?
Imagine attending a 50,000-person concert that’s completely photorealistic, with perfect audio and video quality, from the comfort of your bedroom.
Dave Baszucki, founder and CEO of Roblox (RBLX), said that that’s the type of experience he wants to eventually support on the Roblox platform.
Today, you’re more likely to see a few dozen people interacting with each other in any particular Roblox experience using blocky, cartoon-like avatars.
It’s going to take a big leap in Roblox’s technology to get to the point where it can support 50,000 people all at once.
But there’s plenty of time to get there. This is early days in the metaverse category.
In fact, Baszucki’s goal is to eventually get 1 billion people on Roblox.
A lot of you might think that laughable. For those who don’t use it, Roblox has a reputation for being filled with low-quality games that are just for kids.
But if you look at the numbers, Roblox might be on to something. The company reported that it had 58.5 million daily active users in July, up 26% from a year ago and the highest level it’s ever had.
It also reported that the number of users on the platform aged 17 to 24 are on the verge of surpassing Roblox’s original core demographic of 9 to 12 year olds.
If Roblox was just a fad, we probably wouldn’t see numbers like these.
In some ways, Roblox is kind of like TikTok. It’s not a game; just like TikTok isn’t a video. Both are platforms that support user generated content.
In the case of TikTok, it’s short form video. In the case of Roblox, it’s mostly games, but it can be almost anything. The defining characteristic of a Roblox experience is being real-time, interactive and 3D.
The technology required to create a platform where anyone can create interactive 3D content is much more nascent than the tech required to build a video-based platform like TikTok.
But if you believe in Roblox’s vision or the vision of what some people call the metaverse, then this is where the world is headed.
A Story Stock
Roblox is a story stock. A 50,000-person photorealistic virtual concert sounds nice, but it’s something that’s just not possible right now.
But I do think we are moving towards that futuristic vision. As Unity CEO John Riccitiello has said, the internet is going to become more 3D and it’s going to become more interactive.
Whether Roblox has a major part to play in that future version of the internet is an open question, but the company is trying to do something big.
We’ve seen smaller scale concerts on the platform, and every day millions of people are engaging with experiences created by individuals, small teams of developers, and big companies.
Brands as varied as Tommy Hilfiger, the NFL, Chipotle and Spotify have created Roblox experiences.
In the company’s second quarter earnings conference call, Roblox management discussed some key things they are looking forward to in the near term and longer term.
I’ll talk about a few of them.
In future, Roblox’s goal is for everyone on the platform to have a hyper-realistic avatar that looks exactly like them
The heads and faces of those avatars will animate in sync with the person controlling them
Everything on the platform, from the experiences to the clothing to the avatars themselves, will be user generated content. Roblox just wants to be the platform that enables all of the creation; they don’t want to create it themselves
Roblox mostly monetizes today through the sale of Robux, the platform’s currency, which is used to purchase virtual clothing, accessories and gain access to certain experiences. Soon, the company will add immersive forms of advertising to the platform.
For instance, you can be in an experience and then see a portal to another experience from a brand that you’re interested in. You can hop in that portal and visit that other experience, and maybe pick up some virtual swag along the way.
This is all cool stuff, but like I said, Roblox is a story stock. I think it’s going to be years and years before there is any type of pay off for investors who buy at these levels.
The company is fully in investment mode with a focus on user growth and user engagement. Sure, they’re doing a little bit more on the monetization front, but I don’t think it’ll be anywhere near enough to justify this stock price anytime soon.
At the same time, the company has guided to share based dilution of around 5% per year, which is really high. That’s going to be a headwind.
So, as excited as I am about the metaverse and what Roblox is doing, I’m not a buyer at these levels.
I’m going to keep a very close eye on this company, but for metaverse exposure, I’d rather be in a stock like Meta (META), which is trading at an extremely cheap valuation and has some nice optionality with what they’re doing in VR and AR.