Roblox (NYSE: RBLX) is a gaming company with millions of active users on its platform. And there are millions of developers on there, creating tons of original content. Even if you don't like games, you might want to shop in a virtual world one day, which is a possibility on the platform as companies launch virtual stores in Roblox's metaverse.
Many investors could be making a big mistake in overlooking the potential that this growth stock has. It has lost half of its value in the past three years, and a lack of profitability certainly isn't helping the stock. But here are three reasons you shouldn't give up on Roblox just yet, and why it could be an underrated buy.
1. It's in the early innings of its partner program
It was just last year that the company launched its partner program, which could be a game changer for its business. The program will make it easier for advertisers to reach gamers in Roblox's massive ecosystem. By offering immersive ads on the platform, it will give marketers a unique way to promote their brands.
Advertising is a huge opportunity for Roblox, and it could lead it to profitability . During the first three months of the year, revenue totaled $801.3 million, up 22%. The company generates money primarily from virtual items like sales of its virtual currency, Robux; advertising is still a fairly new opportunity.
Last quarter, the company incurred a net loss of $270.6 million. A boost from ad revenue could potentially get Roblox into the black. It might not happen overnight, but the company is positioning itself to be a more attractive option for advertisers. One way it's doing that is by focusing on more content for older users.
2. It's not just a platform for young kids anymore
By and large, Roblox is a gaming platform that is most popular with young kids. The vast majority of users (60%) are under the age of 16. But the company is working on targeting older users as well, which can lead to more interest from advertisers.
Last year, the company introduced experiences specifically for players 17 or older. These users will have to verify their ages so that they can see more-mature content, which can include bloody images and intense violence.
By branching out and appealing to a larger user base, that will grow its daily active user (DAU) count, generate more revenue from the sale of Robux, and potentially lead to advertising opportunities.
3. Roblox is aiming for 1 billion active users
Roblox has an ambitious long-term goal to hit 1 billion DAUs. It would be an enormous accomplishment considering it finished 2023 with an average of 71.5 million DAUs. While that represented a year-over-year increase of 22%, Roblox still has a long way to go in reaching 1 billion.
That is a lofty goal, and whether Roblox can get there is debatable, but it's great to aim for it. Growing its user base can add credibility to the platform, proving that its appeal stretches beyond just young kids. And as there are more users on Roblox, that, in turn, can attract more game developers, resulting in even more content on the platform, which can further accelerate its DAU growth.
A risky stock that could be worth taking a chance on
Although Roblox's business is losing money today, there's definitely potential for the company to be in a much stronger position. With many levers to pull to drive more growth for its operations, including targeting advertisers and older users, investors shouldn't count out the stock too early.
If you're willing to be patient and take on some risk, Roblox could be an underrated investment in the long run. It might take some time, but the moves the company has been making recently could lead to much more revenue growth, and potentially profitability, in the years ahead.
David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Roblox. The Motley Fool has a disclosure policy .
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