Investidea: Roblox, because it's going to be very bad

Инвестидея: Roblox, потому что все будет очень плохо

Today we have an extremely speculative idea.: take shares of the Roblox gaming platform (NYSE: RBLX), in order to capitalize on their rebound after a recent fall.

Growth potential and validity: 25,5% behind 16 Months; 46% behind 3 of the year; 96% behind 7 years.

Why stocks can go up: because there is no future for the rising generations and Roblox will help to satisfy their ambitions.

How do we act: we take shares now for 70,67 $.

When creating the material, sources were used, inaccessible to users from the Russian Federation. We hope, Do you know, what to do.

No guarantees

Our reflections are based on the analysis of the company's business and the personal experience of our investors, but remember: not a fact, that the investment idea will work like this, as we expect. Everything, what we write, are forecasts and hypotheses, not a call to action. To rely on our reflections or not – it's up to you.

And what is there with the author's forecasts

Research, like this and this, talk about, that the accuracy of target price predictions is low. And that's ok: there are always too many surprises on the stock exchange and accurate forecasts are rarely realized. If the situation were reversed, then funds based on computer algorithms would show results better than people, but alas, they work worse.

So we're not trying to build complex models.. The profitability forecast in the article is the author's expectations. We specify this forecast for the landmark. As with the investment idea in general, readers decide for themselves, it is worth trusting the author and focusing on the forecast or not.

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What the company makes money on

Roblox is a gaming platform, which allows users to create and distribute their own games. We have published a detailed overview of the company's business ahead of its direct public offering. (DPO) last spring. So let's focus on the moments, which are important for understanding the investment idea:

  1. The company earns by selling virtual items and in-game currency to players.
  2. Players can earn within the game.
  3. The main audience of the company is children from 6 to 14 years.
  4. Roblox unprofitable.

Инвестидея: Roblox, потому что все будет очень плохо

Инвестидея: Roblox, потому что все будет очень плохо

Arguments in favor of the company

Fell down. Over the past three months, the company's shares have collapsed under the weight of their exorbitant high prices from 134 to 70,67 $. This gives us the opportunity to capitalize on the stock rebound.

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Through the Universes. The company can be considered an example of the implementation of the concept of the metaverse in business. The concept itself has become so popular., that Facebook even changed its name to Meta, to slightly increase the fallen attractiveness of their business in the eyes of consumers. But there is a certain reason for the idea of ​​the metaverse..

The current younger generation is predicting a bunch of troubles in the future. Main, that they will be poorer than their parents. The reasons for this are numerous., but in general the main premise is that, that the modern economy is experiencing much less need for a pool of human labor. The share of labor in the structure of the US economy was declining even before the pandemic due to the efforts of the corporate sector to streamline work processes and automate them wherever possible.

The pandemic has somewhat accelerated this process., but in general the world is moving in the same direction, as before, - even faster. The never-ending pandemic is further dampening the prospects of the younger generation: Opportunities for self-realization are becoming less and less.

A very good characteristic of Roblox and its prospects would be quote from Ready Player One, where an entire generation of young people spent time on a similar virtual platform: "They call our generation the lost millions.. Not because, that we've gone somewhere, and therefore, that there was nowhere to go.". Actually, we have already seen something like this in the case of the Chinese Bilibili.

The relevance of the concept of the metaverse in the current conditions and the need for the establishment in its further development can contribute to the influx of large investors into these shares.. It can very well, that Roblox will pump contrary to economic logic, likewise, how Tesla was once pumped up: for the sake of implementing political tasks.

Indirect confirmation of, that my hypothesis is not so far from the truth, serves that, that the company's shares are worth significantly more than the price of its DPO in 45 $, - which somewhat elevates Roblox above the status of an ordinary unprofitable startup. Looks like, investors really believe in the company. well, or, at least, ready to finance this large-scale experiment for some time.

Инвестидея: Roblox, потому что все будет очень плохо

Zuckerberg will call. Recent Meta Report, greatly disappointed investors, contains one of the main arguments in favor of Roblox: former Facebook plans to increase investment in the development of the metaverse. It seems to me, this logically leads Meta to need at least a massive partnership with Roblox, and even the purchase of the company. And the purchase doesn't look absolutely fantastic.: Roblox's capitalization is about $39.55 billion, what, On the one side, a lot, but, with another, not so big money for Meta.

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What can get in the way

Expensive. Even after the fall, the company is worth as much as 23.82 in annual revenue - a monstrous amount., even if you forget about its unprofitability. And given the unprofitability, the cost of Roblox looks Rabelaisian ridiculous.

You should prepare for that, that the company's shares will be extremely volatile - especially in cases, when a company fails to meet revenue growth forecasts. And it's a very real risk: the main audience of the company is children, who are not in control of their finances and time, All of this is controlled by their parents.. Therefore, a drop in revenue and operating indicators of the company is possible., caused by, that parents forbid their children to spend all their pocket money and time in Roblox.

Also, Roblox will be badly affected by periodic easing of quarantines.: investors will compare the company's growth rate with the indicators of the unprecedented full quarantine of 2020.

Yes, and be a loss-making company in the period, when rates are expected to rise and loans become more expensive, not very good: investors try to avoid shady, money-losing startups in such cases.

Инвестидея: Roblox, потому что все будет очень плохо

Colossal reputational risks. As stated above, platform is very popular with kids, which in itself makes her vulnerable. In the era of cancellation culture, any scandal, related to violations of children's rights, even small, even baseless, may be fatal for the company. If the number of compromising reports in the press becomes very large, then the company will simply be crucified, and her quotes will fly to hell.

Whether it's a business, or a vision. The company's business is unprofitable: total margin is minus 24,52% from proceeds. Optimist will indicate, that the company is relatively new to the stock exchange and that the marginality of its business has increased slightly over the past year. You can also point to, that Roblox management is heavily investing in the development of the platform - and it is expected, that someday these investments will bear fruit.

But while it seems, that this is not a business, and the experiment on the construction of the metaverse. Me, for example, disturbs then, that the company's revenue per user last November was at 8% below, than in the same period a year earlier. This indicates, so far Roblox has problems with that, to effectively monetize a growing user base.

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In this context, the fact that, that the founders and executives of Roblox have a controlling class of shares, which gives them more votes when voting. This means, that they can make important decisions, ignoring the interests of minority shareholders like us. There is a real possibility that, that they will focus on "building the metaverse" at the expense of quotes - and, for example, refuse to sell the company.

And of course, there are high risks of bankruptcy - even at the current growth rate of the company's expenses, there should be enough cash reserves for a couple of years of work.

What's the bottom line?

Shares can be taken now for 70,67 $. Then there are three options:

  1. wait for growth until 88 $. Think, we will reach this level in the next 16 Months;
  2. wait for growth until 100 $. Here it is better to focus on 3 years of waiting;
  3. wait for stocks to return to level 134 $.

But still remember that, that this idea is very volatile, - like all investments in startups. So don't take those stocks, if you're not ready for it, that the concept of the metaverse and its followers may fail.

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