When it comes to fast money, sometimes, there’s nothing as powerful as a new kid on the block, explains growth stock expert Mark Skousen in his speculative advisory service, Fast Money Alert.
The reason why is because fast money players often see the potential profit and trading opportunities in some of the market’s hottest initial public offerings (IPOs).
Today, we’ve identified one of those very recent IPOs that we think is going to light up the fast-money scoreboard. That company is video game maker Roblox Corporation (RBLX).
On March 10, RBLX began its life as a publicly traded company. Shares debuted at $64.50 — well above the reference price of $45 set by the NYSE — and quickly traded up to $72.93. This tells us the fast money loves this one.
So, why Roblox? Well, if you have any kids or teens in your household, you probably already know what Roblox is. If not, it is an online video game platform where you can play and create games. It’s similar to Minecraft, but the characters and worlds look a little more like "The Lego Movie."
What we like about it is that the platform currently has over 150 million monthly active users and 13.5 million daily active users, an increase of 39% from the previous year. Kids can play Roblox alone or with friends across the globe, and they have been increasingly doing so for the last decade.
This platform growth has allowed the company to monetize its game by allowing everyday users to become game developers and create their own games using the Roblox Developers Kit. So, developers of all ages can create a wide variety of games that other users play.
These developers can charge money to play the games, or they can offer free games where players can pay to unlock special features and new levels. Oh, and unlocking those special features requires, you guessed it, more money from users.
How much money? Well, in 2019, Roblox had revenue of $488 million. This was a tenfold increase from two years prior, when it received just $45 million.
Then, in January of this year, the company reported a revenue of $613 million for just the first three quarters of 2020, a 68% increase from the previous year. Some of this increase has been due to the COVID-19 pandemic, which has seen more kids staying home and getting online.
The company has wisely been increasing its spending in order to both capitalize on this and to add more and more users. Like so many tech stocks that are still in their growth phase, Roblox is operating at a loss for now.
But, just like Facebook (FB), Snapchat (SNAP), Twitter (TWTR) and others, this period of paying to acquire users for Roblox will start turning into profits in a couple of years.
Wall Street knows this, and so do we. That’s why RBLX is our newest recommendation. So, let’s buy Roblox Corporation at market with a protective stop at $55.00. There are no call options available in this one yet, but given its IPO status and its potential for a huge run higher, we expect big returns in just the common stock.
