Roblox (NYSE:RBLX) is one of the leading players in the metaverse. If you’re unfamiliar with the metaverse, it’s a virtual reality space where users can interact with the computer-generated environment and other users.
In the case of Roblox, that can mean a lot of interacting in a virtual setting with a pretty young crowd. Roblox is mostly popular with kids around 13 years old and younger. But the company is trying to change that by expanding its platform’s capabilities and offerings and attract more adult users.
Facebook (NASDAQ:FB) is trying to change how its users interact too. In its most recent earnings conference call, CEO Mark Zuckerberg said, “In the coming years, I expect people will transition from seeing us primarily as a social media company to seeing us as a metaverse company.”
Roblox is trying to minimize the threat
Compared to Roblox, Facebook is a massive company. In its most recent quarter, Facebook reported revenue of $29 billion, while Roblox reported $454 million. That suggests Facebook has a larger budget to work with as it develops a metaverse environment. When Facebook’s CFO David Wehner was asked about what level of investment the company is making in the metaverse, he said it would be spending billions. Clearly, that makes Facebook a formidable competitor in the race for metaverse dominance.
Roblox management was asked about Facebook’s announcement in its most recent earnings conference call, and this is what CEO David Baszucki said:
The other thing that we believe … for a metaverse utility, it must be a civil and safe platform that welcomes 6-year-olds and, at the same time, welcomes 30-year-olds who are working together. This is very complicated. This takes — I think it’s much easier to start from that civility and safety foundation and then open up the freedom than to try to reel it back in and go the other direction.
This sounds a little bit like Roblox is taking a shot at Facebook’s inability to contain toxic content on its site, saying that Facebook would be starting from an unsafe and uncivil platform and trying to clean things up from there, while simultaneously pointing out that Roblox is a civil and safe platform.
What this could mean for investors
On the surface, Facebook’s entry into the metaverse space could be a threat to Roblox. After all, it is a much larger company and will be investing billions into the product, while Roblox has yet to eclipse $1 billion in annual revenue. It is reasonable for Roblox management to feel threatened. But that might not be the case.
Facebook’s entry could spur a general expansion. It could attract more attention from the developer community now that the company is in the space. Whereas previously, developers might have been hesitant to commit resources to the metaverse, they might feel more secure creating products and experiences now that Facebook is leaning in.
Certainly, Facebook might take a larger piece of the pie than Roblox. But the overall size of the pie will be bigger, and it could result in Roblox benefiting from Facebook’s entry. Therefore, Roblox shareholders need not look at Facebook’s entry solely as a negative for the stock, although it very well could be. There is also the potential that Facebook’s entry results in a positive outcome for Roblox.
And while the outcome might not be certain, volatility in Roblox’s stock is certain to rise. Whenever uncertainty is added to the business, it raises the risk for a company. So if you own Roblox stock, buckle your seatbelt.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
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