Roblox has an amazing 70 million users, but it still needs to prove itself to Wall Street

Roblox has an amazing 70 million users, but it still needs to prove itself to Wall Street

Many adults heard the phrase “Robux” for the first time last holiday season when the virtual currency of the gaming platform Roblox landed at the top of many wish lists.

Roblox – with an astonishing 70 million users – has attracted a loyal fanbase, especially among teenagers, with its wide range of games, from simulation and adventure games to games you design yourself or with friends.

This Thursday before the bell, Roblox will report its first quarter earnings. And it needs to prove to Wall Street there is more growth ahead.

In the fourth quarter of 2023, Roblox’s revenue was $750 million, up 30% year over year – but had a net loss of $323.7 million.

Investors have calmed down. The stock has fluctuated between $25 and $45 for several months after reaching its peak, just above $130 in 2021, the year the company goes public.

“The company has faced high operating costs and it needs to maintain rapid growth at the same time,” said Matilda Beinat, AR/VR analyst at technology intelligence firm ABI Research. “Investors are wondering if that’s feasible.”

Analysts and investors remain moderately optimistic. Here are three reasons why.

New revenue streams
Roblox has grown since its launch in 2006 and so has its growth strategy. The platform allows users to play user-created games and create their own games and it also incorporates social media networking elements, so people can make friends and talk to developers as they explore the virtual world.

Last year, its CEO David Baszucki shared his vision of Roblox becoming a place where people can date and form “real life relationships” within the next five years. In February, the company said 19.7 million new “friendships” were formed every day on the site.

The company’s long-held vision was for Roblox to be ubiquitous, and in many ways, it succeeded. The platform’s active daily users use the platform for an average of 2.5 hours a day – and that number continues to rise. About half of US youth, ages 12 to 17, use Roblox in the US every month; and it continues to experience growth overseas, particularly in Asia.

His hit songs include Adopt me! (a pet simulator), Brookhaven RP (a working virtual city) and Hell Tower. While many of the games are aimed at teenagers, the company is working to grow and monetize the older player base.

Just last week, the company announced it would be serving immersive video ads to players over 13. Roblox’s stock price has risen slightly since the announcement.

A new developer subscription offering allows developers to make financial subscriptions to unlock certain experiences, a feature analysts expect could help the platform grow even more among other generations.

Brand importance, and risk
Brands are also increasingly interested in Roblox. The company said it experienced its strongest brand engagement on its platform in the fourth quarter of 2023, with more than 300 brand activations on the site including from Ralph Lauren, Nike, Crocs and Lego.

Walmart has also joined the Roblox metaverse, adding an experience that allows users to purchase physical items and receive them in the mail.

While more brand engagement is likely to continue this year, the company needs to ensure consumers don’t experience ad fatigue, according to Mike Proulx, director of research at market research firm Forrester.

“As companies double down on advertising as a way to attract more brands, they need to balance what might be seen as ‘simple results’ with user experience,” he said.

“Too many ads risk consumer backlash. Brands that want to effectively reach Roblox’s young user base should prioritize the creation of value exchanges. Programmatic ads alone won’t cut it,” Proulx said.

Good time
Roblox’s growth reflects growing interest in two buzzing industries: artificial intelligence and augmented reality (XR), a term that includes virtual reality, augmented reality and mixed reality.

In February, Roblox introduced an AI chatbot that allows users to communicate with each other in real time, regardless of the language they speak. This tool works in 16 languages. The company also previously shared its vision for the expansion of AI on the platform with tools that will “enable every user to be a creator.”

At the same time, major tech companies continue to invest in XR, with increased interest due in part to the launch of Apple’s Vision Pro headset. Metaverse attracts new interest.

“We can already start to see the company’s performance improve with the implementation of this new strategy, and I believe that with the right advertising and the right timing, Roblox will soon become the communication and collaboration platform it is working towards,” Beinat said.

Face the competition
But Roblox also faces challenges from its main competitor, Epic Games’ Fortnite, and the platform’s Unreal Editor for Fortnite (UEFN), a tool that allows creators to build experiences and publish them directly to Fortnite.

“They’re definitely trying to eat Roblox’s lunch, even though Fortnite’s player base tends to be older,” said Lewis Ward, director of games at market research firm IDC.

Epic has also taken steps to tap into Roblox’s core user base.

In February, the publisher announced it was partnering with Disney to create open-ended games and entertainment related to Fortnite, offering users the ability to play, watch, shop and engage with content and characters from Disney, Pixar, Marvel, Star Wars, Avatar and other franchises.

“It’s clear that [Fortnite] intends to go after younger players in 2024 and 2025,” Ward said.