on the other hand, NASDAQ Composite The index is up about 21.5% this year, but remains down about 21% from its all-time high. Growth stocks are still in bear market territory, with many companies that saw their valuations rise significantly in the midst of the pandemic continue to trade at steep discounts relative to previous highs.
In addition to the bullish trigger created by economic stimulus and low interest rates, many software companies attributed their engagement to the conditions of shelter-in-place and social distancing. But as high inflation and rising interest rates drove investors away from growth-dependent companies, valuations of high-trading “pandemic stocks” plummeted.
While some stocks associated with the pandemic may never return to their previous valuation peaks, others may well actually recover and reach new highs. We continue to look at promising software companies that have what it takes to build wealth for long-term shareholders, even though they’re down 71%.
A leader in this category could disrupt the market
The Metaverse has the potential to become a massive platform for entertainment and commerce, generating vast amounts of valuable data. Within this category the roblox (RBLX 2.14%) The company stands out as one of the most well-known and promising companies, and its tattered stock could be a big win for the patient investor.
If you hear that a child or teenager you know is playing Roblox, It’s important to understand that this is not just another game. While the Roblox Metaverse has a somewhat unified aesthetic across its incredibly diverse content, the platform actually hosts a wide range of individual games and social experiences.
Users can create their own content on the platform and actually earn money from other users interacting with that content. In the first quarter, Roblox creators earned $182 million, up 24% year-over-year, with monetization incentives constantly adding new games and experiences to the platform.
And Roblox could evolve beyond its core allure as a hub for gaming and socialization into a larger and more inclusive media and content ecosystem.
Regrowth and great potential still to come
After some difficult performance comparisons and engagement headwinds in 2022, Roblox’s business is back to strong growth.
Daily Active Users (DAU) on the platform grew 22% year-over-year to reach a record 66 million, while total engagement hours grew 23% year-over-year to reach 14.5 billion. Meanwhile, revenue increased 22% year over year to $655.3 million, bookings increased 23% to $773.8 million and operating cash flow increased 11% to $173.8 million.
Roblox already has a sizeable user base, but it still has great potential to grow in the long term. There are already signs that a very promising adoption and engagement trend is emerging.
Children and teenagers are the most popular, but the demographic of the platform is now aging. Not only are existing users sticking to the platform as they age, but new users in the older age range are also joining the platform. The 13+ demographic saw a 31% year-over-year increase in engagement. Meanwhile, DAU in the 17-24 age group grew 35% year-over-year in Q1.
CEO Dave Baszucki sees a path to eventually reaching 1 billion daily active users. While this goal seems very ambitious, it is by no means impossible.consider it meta platformFacebook’s DAU now exceeds 2 billion. The tech giant also sees persistent virtual worlds as the future of social media, so it’s willing to accept billions of dollars in losses each quarter on its Metaverse efforts.
Despite being a much smaller company, Roblox is significantly ahead of the Meta Platform in many key aspects of developing the Metaverse world.
Play the Long Game — This Growth Stock Could Create Wealth
Despite falling more than 70% from its highs, Roblox continues to trade at multiples that rely heavily on growth.
Roblox has a market capitalization of about $24 billion and is valued at more than seven times its expected revenue this year. The company’s approach to deferring revenue when recording sales means that revenue tends to lag behind bookings, so the actual valuation is slightly better than what the future price-to-sales multiple would suggest. It is a thing. Still, this is the kind of stock that relies on growth and is best suited for risk-taking investors willing to play the long haul.
Meanwhile, Roblox’s early leadership position in the metaverse is just scratching the surface of a huge long-term opportunity. Younger generations are growing up, playing and interacting more and more in virtual worlds, a trend that will have a transformative impact on entertainment and commerce in the coming decades.
Randy Zuckerberg is the former head of market development and public relations at Facebook, the sister of Meta Platforms CEO Mark Zuckerberg, and a member of the Motley Fool’s board of directors. Keith Noonan has no positions in any of the mentioned stocks. The Motley Fool has a position on Metaplatform and his Roblox and endorses them. The Motley Fool has a disclosure policy.