There aren’t that many metaverse stocks out there as of now, but I do feel that is about to change in the next few years.
The same thing happened with cryptocurrencies, and now not only do we have single stocks that offer pure crypto exposure, but we also even have crypto ETFs.
The natural path the metaverse will take is to enter through video gaming because of the ease of transition it will facilitate once the real thing is up and running.
There’s a fit right there because video gaming already possesses the parameters of a world set up for virtual activity; and yes, even though one could call Facebook a “world,” much of that is done through logging onto a webpage.
Populating a webpage is out of date technology and the new internet version 3.0 will be vastly different.
Enter Roblox.
Roblox (RBLX) is what Facebook (FB) would have wanted to already become but spent most of their time developing Instagram — essentially a juiced-up version of Facebook with historical videos and old photos.
That’s old news and old tech.
It won’t cut it as the metaverse guarantees a real-time, on-demand experience in virtual 3D form with humans controlling avatars that guarantees to become a more immersive experience with our 5 senses.
In short, it’s better than opening a web page. A lot better.
Roblox already relies on computer graphics and programmed virtual experiences. And with 49% of users under the age of 13, its demographics are a massive competitive moat because young people embrace new technologies quickly and are more prone to relying on digital tools to facilitate all parts of their lives.
The company is already building on its expertise in creating virtual reality experiences.
Last year, the platform hosted a virtual performance by rapper Lil Nas X that was attended 33 million times.
In November, it announced a collaboration with apparel company Nike to create Nikeland, a virtual space allowing gamers to play Nike-themed games and try on products.
Nike is preparing to hawk its products in the metaverse, which could open up revenue opportunities for platforms like Roblox.
What takes my breath away about Roblox is not the long-term vision of the company, although I have no complaints, but its short-term metrics which are blistering hot as revenue increased 102% over Q3 2020 to $509.3 million.
Find me a company of this type of magnitude expanding by over 100% per quarter and one will soon realize that they are few and far between.
To expound more on their overperformance — Average Daily Active Users (DAUs) were 47.3 million, an increase of 31% year over year
Roblox’s 3Q results highlight its early leadership in the metaverse and continued innovation to capitalize on materially higher long-term monetization opportunities.
Its premium is appropriate given the advertising optionality on top of their existing in-app purchase revenue streams.
Long term, the vision for brands is the exact same as games or play experiences in that I imagine an ecosystem where there are thousands and thousands of these personal hands-on experiences. They are created in concert between brands and possibly creators and developer communities.
It was 16 years ago, games and play experiences were new on Roblox. That has all led us to the beginning stages of the metaverse.
The high-level vision Roblox has is just as print and just as video have been and continue to be interesting ways for brands to interact with their audience.
Let’s look at the example of Vans World, which had over 40 million visits on Roblox, people who visited Vans World were able to wear Vans, go skateboarding, check out the shop, see what new items Vans had for sale.
It’s a deep way for brands to connect with their fans and is essentially the precursor before the metaverse exists but through a video game platform.
The bear case for Roblox until now has involved its primary reliance on a younger demographic, as there have been questions on its post-lockdown growth prospects, in an environment where it could be arduous to match the covid era success. But that is an argument that doesn’t hold water, as the userbase is aging up, with 17-24 year-olds currently the fastest-growing age group.
Strategically, Roblox has positioned itself as the tech firm at the forefront of the metaverse and we all know how first-mover advantage is critical in holding off competition with firms with stronger balance sheets and an army full of agile developers.
Roblox’s inroads with kids spending time in the virtual 3D worlds the gaming platform offers is a firm lock on future cash flow if the company can do its part to develop the metaverse and make sure its revenue becomes sticky.
The stock will grow 10X if the metaverse is a moderate success, and if it is not, investors will only gain about 200% in share appreciation. Not too bad.
