Investing in Gaming Stocks: Roblox

Investing in Gaming Stocks: Roblox

Roblox now finds itself with a market cap of US$35.5 billion

After a decade and a half online, Roblox held its stock market debut on Wednesday, March 10, 2021, which went swimmingly well for the company. In January the company was valued at $29.5 billion, but after the stocks were pushed at $64.50 apiece, Roblox now finds itself with a market cap of $35.5 billion.

While this may sound like a bunch of economic jargon to most of us, it's clear that it did one thing for the company: made them a whole lot more valuable. This comes off the back of the fact that Roblox's revenue jumped up 82% in the last year to reach $923.9 million.

So, this all begs one pretty big and complex question: is it wise to invest in gaming stocks? Well, let's take a closer look.

[It's worth noting now that this is not at all financial advice. Ensure that you do your own research and make your own informed decision before investing any capital in any brand.]

Blocks of Stocks

To put the value of Roblox as a whole into perspective: gaming companies like Zynga, Electronic Arts, and Playtika all have values in the single billions, while the software developer Unity comes close to rivaling Roblox. While this is no surprise, after all, Roblox has been booming for over 15 years as a single IP, it goes to show that their stocks are not promising a quick boom—they are promising longevity, sustainability, and measured growth.

Furthermore, with Roblox recently announcing a bunch of forthcoming features which hope to attract more adult audiences, the company aims to keep pushing the envelope.

But wait a moment: let's take a step back, what actually is Roblox?

Building Roblox

Roblox is the brainchild of David Baszucki and Erik Cassel who began working on the project in 2004, releasing it onto PC in 2006. While there are many facets to Roblox from character customisation to the iconic "oof" sound effect, its heart is as an online game platform and game creation system—allowing you to create and play, well, pretty much anything!

The game has always run on a free-to-play basis with a number of in-game purchases being peddled through a purchasable virtual currency called Robux. It has traditionally attracted younger audiences, with over half of its 164 million users (as of August 2020) being under the age of 16.

The interesting thing about Roblox is that it was not an overnight hit. In fact, for most of its history, the game was relatively small—both in player count and as a company. This is largely attributed to David Baszucki's lack of interest in press coverage and the game being lost among a number of similar platforms that were released around the same time—perhaps most notably being confused with Minecraft in its early years.

It was only in the 2010s, and the latter half of them at that when Roblox came into the limelight—something that was accentuated by the COVID-19 pandemic, which saw a rapid rise in players.

This increased player base throughout 2020 saw the valuation of Roblox skyrocket from $4 billion in February 2020 to $29.5 billion in January 2021.

The fact that Roblox decided to go public (release their stocks for purchase) is a strong indicator that they have big plans for the future to keep building and expanding the platform. Expansions, if they go well, should be an excellent return on investment for those who bought stocks.

Now, let's get onto the real question—is investing in gaming stocks a good idea?

Video Gaming Stocks

[Another reminder that you should not take this as financial advice, just an opinion].

As a whole, the gaming industry is a very attractive market to invest in. By the "gaming industry" we're lumping in everything—from esports and gaming facilitators to developers and the makers of gaming tech. Back in 2012, the global gaming market had a revenue of US$70.6 billion. That almost doubled in 6 years, with 2018's revenue weighing in at US$137.9 billion. Looking ahead, 2021 is hoping to continue this trend with a forecast of US$180.1 billion.

That means that on average the gaming industry has seen 11% compound annual growth, making its growth 4x higher than the US economy enmasse.

While this may seem like a flag to immediately go and invest, it's important to remember that gaming stocks are pretty high risk. Like most forms of entertainment, especially those reliant on technological innovation, gaming is an incredibly high risk, meaning if your investments fall onto the wrong company, you're in big trouble.

Take Atari, Yahoo, or Blockbuster, all of which crumbled despite their surrounding industries thriving.

Not only this, but gaming stocks are also highly volatile if markets shift. For example, back in 2018 various gaming stocks plummeted around 50% as Battle Royale titles exploded onto the scene and threw competitors into disarray.

Of course, this volatility means you can win big, but it can also mean you could lose everything at the drop of a hat if a company makes the wrong move or fails to keep up with market trends. And because the volatility of the industry is hard to predict—after all nobody knows what the next big trend will be—it's incredibly hard for gaming companies to sustain continuous growth.

Because of these reasons, the safest way to invest in video game stocks is to go ahead with an ETF (exchange-traded fund) which helps to build a diverse portfolio of stocks that are likely to reap some more sustainable growth than putting all your eggs in one basket.

TLDR; Video game stocks are volatile property meaning that you could win or lose big time if you invest in them. Established companies, like Roblox, going public can be tempting for investors but by putting all your eggs in one basket you're setting yourself up with big risks. Gaming ETFs offer a great way to invest in the booming, ever-increasing gaming industry without hedging your bets on a single developer or IP—making investing an attractive possibility for many.

If you have a favourite game you're thinking of investing in, why not do it right away? Head over to Eldorado to buy virtual currency and other goods for any major online game—from OSRS and Escape from Tarkovto Warframe.

Disclaimer: Analytics Insight does not provide financial advice or guidance. Also note that the cryptocurrencies mentioned/listed on the website could potentially be scams, i.e. designed to induce you to invest financial resources that may be lost forever and not be recoverable once investments are made. You are responsible for conducting your own research (DYOR) before making any investments. Read more here.

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