Will Roblox Be a Trillion Dollar Stock by 2030?

Only a handful of tech companies have ever become a $1 trillion company. Appleand Amazon reached that milestone in 2018, Microsoftfollowed in 2019, and facebookjoined the club early this year.

Many other tech stocks could join that elite group within the next decade — and investors jumping on board today could reap huge multibagger gains. Could be one of those stocks? Roblox, the gaming company that gained millions of new users during the pandemic?

Image source: Roblox.

How much is Roblox worth today?

Roblox went public in March with a reference price of $45. The stock opened at $64.50 and is currently trading in the high $80 — giving it a market cap of nearly $50 billion. For Roblox to become a $1 trillion company by 2030, its stock would need to rise about 20 times.

No pure-play video game company has yet crossed the $1 trillion mark. Activision Blizzard and Electronic art, two of the world’s largest video game publishers, are currently worth approximately $70 billion and $40 billion, respectively. Unit, which indirectly competes with Roblox in the game engine and development space, is worth about $30 billion.

If we compare the price-to-sale ratios of these four companies, we’ll find that the market pays a much higher premium for game creation engines like Roblox and Unity than traditional video game publishers.

Source: Yahoo Finance, July 7. FY = fiscal year.

But is Roblox all the rage or a new content platform?

However, there are some key differences between Roblox and Unity.

Roblox is a platform that allows younger users, many of whom have no coding experience, to build simple block-based games and share them with other players. Unity is an advanced game development engine that powers more than half of the world’s mobile, PC and console games.

Roblox encourages users to monetize their games with an in-app currency called Robux in its walled garden. Unity provides developers with more flexible tools for integrating in-app ads, in-app purchases, and other features into their games.

The bulls claim that Roblox’s self-sustaining cycle of content creation, self-promotion and monetization will fuel its long-term growth. The bears will point out that half of the platform’s daily active users (DAUs) are under the age of 13, and they may eventually grow out of Roblox’s simple experiences or move to a more advanced game development engine like Unity.

The bulls will point to Roblox’s growth rates. Between the first quarters of 2018 and 2021, Roblox’s DAUs more than quadrupled from 10.3 million to 42.1 million, their total hours spent increased from 2.1 billion to 9.7 billion, and the average bookings per DAU increased from $11.62 to $15.48.

Roblox’s revenue grew 56% in 2019, increased 82% in 2020, and analysts are forecasting 167% growth this year. But next year, they expect revenues to rise only 26% after the pandemic is over and more students go back to school.

The bears will point out that Roblox is not profitable and likely cannot become profitable without lowering the exchange rate between US dollars and Robux for developers. However, this could alienate developers and slow down the output of new content from the platform.

Why Roblox Probably Can’t Reach $1 Trillion By 2030?

Even if Roblox maintains a premium price-to-sales ratio of 20 to 2030, it would need to generate $50 billion in annual sales to reach $1 trillion. Roblox generated only $933 million in revenue in 2020, so it would need to generate a compound annual growth rate (CAGR) of nearly 50% to reach $50 billion by 2030.

If Roblox’s valuations cool down, as they probably will over the years, it will need to generate an increasing CAGR to become a $1 trillion company. In comparison, Amazon grew at a CAGR of 27.4% over the past decade — and it’s currently trading just four times as much as this year’s sales. Therefore, it seems highly unlikely that Roblox will become a $1 trillion company within the next decade.

But that doesn’t mean Roblox won’t be generating multibagger gains in the next decade. It could remain popular long after the pandemic is over, attracting a new generation of younger users and launching more powerful tools for advanced users. As the company continues to grow, economies of scale should emerge and amplify earnings growth. Therefore, Roblox may still have plenty of room to run – just don’t expect it to join the 12-zero club anytime soon.