Stocks to buy

Roblox Stock Will Thrive as It Monetizes Brand Deals

California-based Roblox (NYSE:RBLX) is known for providing gamers with a fun, immersive and interactive platform. There are risks involved for RBLX stock investors as the metaverse is still an emerging field. However, there’s strong upside potential as Roblox can monetize its platform in several ways.

The Roblox gaming platform might appeal to young folks, but it’s a big business and the company’s revenue growth is no joke. Impressively, Roblox’s first-quarter 2022 revenue increased 39% year over year (YOY) to $537.1 million.

Has this revenue growth translated into share-price appreciation? Not necessarily, but this story could still have a happy ending. Roblox still has multiple revenue generation opportunities, including some that might surprise you.

What’s Happening With RBLX Stock?

Suffice it to say that a whole lot has changed since the heady days of late 2021. Back then, growth stocks were in vogue and RBLX stock, at $140, seemed unstoppable.

Lately, however, the tide has turned against hypergrowth stocks. Moreover, some investors might worry about Roblox because the Covid-19 lockdown catalyst of 2020 isn’t helping video game stocks in 2022.

RBLX stock has traded below $50 for a while. However, shares seem to have been on a recovery path since mid-June. Furthermore, the company appears to be doing well, and there’s hard data to prove this.

In May 2022, Roblox’s revenue was estimated to be between $194 million and $197 million, representing a YOY increase of 28%-30%. Also, Roblox counted 50.4 million daily active users (DAUs) in May, up 17% YOY.

Tommy in the Metaverse

Still, without the Covid-19 lockdown catalyst, Roblox must find ways to maintain its pace of revenue growth. Fortunately, the company is able to monetize its vast, immersive virtual world in multiple ways.

One analyst, Needham & Company Managing Director Bernie McTernan, identified three ways that Roblox is able to lean into monetization. First, Roblox can use search and discovery features, in which the platform makes suggestions to help users find content they might like.

Second, there’s advertising. McTernan considers advertising a “massive opportunity” for Roblox. “We have them reaching over a billion dollars of advertising revenue in our bull case,” the analyst estimated.

Then, there’s the user-generated content marketplace. “That’s clothing for avatars,” McTernan clarified. “Historically, that’s all been done in-house by Roblox. They’re opening that up now to users to build it themselves.”

There’s a fourth opportunity, however, which investors should consider. A number of well-known brands have explorable spaces on Roblox’s platform. These brands include Gucci, Nike (NYSE:NKE), Ralph Lauren (NYSE:RL) and Tommy Hilfiger.

So, for example, users can shop for virtual luxury goods in a digital town set up by Gucci. Or, they can visit Tommy Hilfiger’s virtual Tommy Play store on Roblox. You just never know which brands might show up on Roblox’s gaming platform in the near future.

What You Can Do Now

Make no mistake about it: RBLX stock has a lot of catching up to do and could remain volatile for a while.

So, don’t pour too much of your capital into this one stock. However, a moderate position in Roblox shares could be appropriate. If Roblox can continue to find ways to capture revenue opportunities, investors just might have a long-term winner on their hands.

On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

David Moadel has provided compelling content – and crossed the occasional line – on behalf of Motley Fool, Crush the Street, Market Realist, TalkMarkets, TipRanks, Benzinga, and (of course) He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.

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