- Roblox stock up 1.62% premarket ahead of the Q3 earnings release.
- Wall Street has its eyes on the Metaverse, and this is massive tailwinds for Roblox.
- But investors are anxious to know how Roblox will deal with competition from MetaPlatforms (formerly Facebook).
Roblox Corporation (NYSE: RBLX) will release the quarter three earnings report after market close on Monday 8 November 2021. The market seems full of positive expectations for the stock because it was up 1.62% premarket (at 12:40 UTC).
With the earnings report looming, the RBLX stock is holding firm just under the EMA-20, having crossed on the way down early this month.
The stock has enjoyed a strong market appeal over the past month, gaining 11.07% against the S&P 500’s 6.97%. But the scenario changes when zoomed out. RBLX stock declined 8.79% in the past three months, while the S&P 500 rose 5.88%.
One wonders whether there is some specific factor behind RBLX’s increased appeal in the past 30 days.
Wall Street is coming for the metaverse
The metaverse could be the reason behind Roblox’s attractiveness. The metaverse, per se, is not a novel concept, but it came into global attention after companies like Roblox began offering immersive experiences to users.
By definition, the metaverse is a three-dimensional virtual world in which real people inhabit using avatars. This digital reality combines online gaming, augmented reality (AR), cryptocurrencies, and social media to enable users to interact and act virtually.
Roblox is one of the pioneers in this sector, but the metaverse became a big deal on Facebook’s entry. On 28 October 2021, Facebook’s Mark Zuckerberg told the world that his company would change its official brand name to Meta. In his words, “Meta’s focus will be to bring the metaverse to life and help people connect, find communities and grow businesses.”
Meta intends to use $10 billion to build out digital reality over the coming several years. From Roblox’s standpoint, the sum is staggering, and the company cannot compete.
On the upside, Meta’s entry into the metaverse is a stamp of approval that digital reality has enormous potential. On the one hand, increased competition will raise the bar regarding the demand for developers to Roblox and Meta’s benefit.
On the other hand, Wall Street is reevaluating its exposure to the metaverse, seeing that the niche could explode in the coming years.
Recently, Wall Street has been warming up to stocks with exposure to the metaverse. For example, during the week ended Friday 5 November 2021, Nvidia (NASDAQ: NVDA) surged 16%.
Investors are hoping Roblox will prevail over headwinds
Meta (previously Facebook) brings unprecedented competition in Roblox’s way, but the company is preparing to be resilient. For instance, Roblox partnered with Chipotle Mexican Grill (NYSE: CMG) to unveil a virtual Boorito Halloween event.
But Meta is not the only headwind blasting into Roblox’s face. The company faced accusations of exploiting young game developers in August and exposing minors to harmful content. But so far, the management happens to be fending off the mud.
Another thorn on Roblox’s side is the three-day outage in late October. The stock shed about 3% in the following days but soon rebounded. Investors feared the outage could have resulted from a peak in external traffic, but the management explained this away. Instead, the failure came from the growth in the number of the company’s servers in their data centers.
In a sense, the increased server count is good news for Roblox’s fundamentals. It means the company’s daily average user (DAU) count is increasing, noting that it grew 46% year over year in Q2. On the back of the expectations for higher DAUs, Wall Street analysts expect Roblox to report $619.8 million in revenues in Q3.
The bottom line
Roblox stock is buoyant, thanks to the increased significance of the metaverse. However, the company is still on probation, so to speak, regarding the recent outage and issue with minors on its platform. Nevertheless, the stock has the momentum to increase the recent gains. A positive earnings report will undoubtedly add fuel to this fire.
