Roblox (RBLX) was one of the hottest initial public offerings (IPOs) of 2021. The children’s gaming company’s shares began trading at $69.50 on 10 March 2021.
However, Roblox Corp (NYSE: RBLX) shares fell to $50.05 on 25 February 2022. Hence, Mr. Market’s love affair with the gaming company is ending.
Thus, some people will wonder if Roblox could become a value investment. Although, Roblox is hard to understand if you don’t have kids. Spoiler alert: I don’t have kids.
My guess is Roblox is a platform that lets kids build and play simple games that will not offend mom. Hence, its popularity.
What Value could Roblox Have?
In addition, Roblox rewards developers who build games for the platform. Backlinkino estimates community developers have made over $328 million creating Roblox Games. Furthermore, Backlinkinfo estimatesover 9.5 million developers have built over 40 million Roblox games.
Investors are interested in Roblox (RBLX) because of its growth. For example, the number of Roblox Daily Active Users (DAU) grew from 13.7 million in the fourth quarter of 2018 to 49.5 million in the fourth quarter of 2021, Statista estimates.
Similarly, Roblox’s quarterly revenues grew from $251.91 million on 30 September 2020 to $568.77 million on 31 December 2021. Plus, Roblox’s quarterly assets grew from $1.848 billion on 31 December 2020 to $4.61 billion on 31 December 2021.
Does Roblox Make Money?
Therefore, Roblox (NYSE: RBLX) is a fast growing company, but does it make money? The answer is no. Roblox is not making money.
For example, Roblox reported four quarterly operating losses in 2021. Roblox reported quarterly operating losses of -$68.61 million on 31 December 2020, -$135.06 million on 31 March 2021, -$142.95 million on 30 June 2021, and -$77.45 million on 30 September 2021. Interestingly, Roblox did not report a quarterly operating loss or income on 31 December 2021.
Conversely, Roblox reported a quarterly gross profit of $39.33 million on 31 December 2020 that grew to $121.08 million on 31 December 2021. Hence, Roblox’s moneymaking potential is increasing, but it is not generating income yet.
How Much Cash Does Roblox Generate?
Gaming platforms, such as Roblox (RBLX), appeal to value investors because of subscription income.Value investors eye the cash Roblox generates by selling subscriptions.
To elaborate, Roblox sells basic premium memberships for $4.99 a month. Moreover, Roblox sells premium subscriptions for $9.99 and $19.99 a month. Hence, the belief is Roblox could generate $247 million a month in subscription income if all 49 million daily active users buy a $4.99 subscription.
Financial numbers, however, show Roblox generates smaller amounts of cash. For example, Roblox reported a quarterly operating cash flow of $98.17 million on 31 December 2021. Roblox’s quarterly operating cash flow fell from $179 million on 31 December 2020. Yet the quarterly operating cash flow rose to $221.04 million on 30 June 2021 and $192.58 million on 30 September 2021.
Roblox can generate enormous amounts of cash. It reported a $1.601 billion quarterly ending cash flow on 31 March 2021. However, the quarterly ending cash flow fell to $145.3 million on 30 September 2021. There was no quarterly ending cash flow on 31 December 2021.
Roblox Accumulates Debt and Cash
Conversely, Roblox (RBLX) is borrowing enormous amounts of money. For example, Roblox reported a quarterly financing cash flow of $1.026 billion on 31 December 2021. There was also a quarterly financing cash flow of $581.05 million on 31 March 2021.
Consequently, Roblox’s total debt grew from $345 million on 31 December 2020 to $1.182 billion on 31 December 2021. Hence, Roblox is financing its expansion by borrowing.
Impressively, Roblox is accumulating enormous amounts of cash. For example, Roblox’s cash and short-term investments grew from $894 million on 31 December 2020 to $3.004 billion on 31 December 2021.
Is Roblox a Value Investment?
I think Roblox could become a cash-rich company. However, I believe it will take several years or longer for Roblox to pay off all the debt it is accumulating.
My prediction is that Roblox will need to borrow several billion dollars to build a sustainable platform. Hence, Roblox is in a race to acquire enough subscription income to pay its debt.
Therefore, I cannot consider Roblox a value investment? Instead, I believe Roblox is a speculative investment that could become a valuable company someday. To explain, speculators could make money if Roblox’s share price grows.
Will Microsoft buy Roblox?
Another way speculators could make money is if Roblox (RBLX) is acquired by a larger company. My prediction, Microsoft (MSFT) acquires Roblox and adds it to Xbox Live.
I think Roblox resembles GitHub, which Microsoft bought for $7.5 billion in 2018. To explain, GitHub is a cloud-based software-development platform where developers can store code. Similarly, Roblox is a cloud-based game development platform.
However I think Roblox’s stock will have to fall below $30 a share before Microsoft (NASDAQ: MSFT) buys it. In the final analysis, I consider Roblox a stock to watch, not buy.