Notwithstanding this, I’m not as confident as some that the share price will continue to soar from here, at least in the near future.

Now, don’t get me wrong. Roblox’s chief pull — allowing players to create avatars that can move between games, all of which have been built by members of its own community — is attractive. When players can switch from creating a theme park to racing a car to starring in a fashion show, it’s perhaps no surprise Roblox is one of the biggest-grossing apps on Apple and Google devices.

Should this be the case, I think there’s a better way to play the gaming theme. 

Top UK growth stock 

Today’s full-year results from Dublin-based gaming services provider Keywords Studios (LSE: KWS) were as good as you might expect. Despite Covid-19 forcing many of the company’s employees to work from home, group revenue increased 14.4% to €373.5m. Pre-tax profit rose a whopping 86.6% to €32.5m. On top of this, Keywords ended the year with net cash (€102.9m), thanks in part to a successful €110m placing conducted in May.

The outlook for earnings looks just as good. As a result of new console launches (Playstation 5 and Xbox X/S Series), Keywords expects to see increased demand across its service lines “in 2021 and beyond.” Indeed, joint interim CEO Jon Hauck said the company was “very confident” in its future, thanks to “the continued trend towards outsourcing and an increased focus on content creation in a growing video games market.”

Buyer beware

All this surely bodes well for the KWS share price over the medium-to-long term. This isn’t to say there won’t be some volatility along the way. Although up more than 1,000% over the last five years, the KWS share price has suffered some not-insignificant reversals over this period. 

Like Roblox, there’s also the possibility that demand for the shares may moderate as investors grow wary that even the most committed gamers will want to get outside more over the next few months. These things matter when it’s considered that KWS shares already traded on a heady 38 times forecast earnings before markets opened this morning. 

Even so, I’d definitely feel more comfortable backing Keywords over Roblox. Aside from making real profits, the former is less focused on fickle young gamers. The ‘picks and shovels’ nature of its business also gives Keywords some earnings diversification that Roblox arguably doesn’t have. 

That said, I’m happy to continue funneling my money into this gaming-focused fund instead.

The post I’d buy this UK growth share ahead of Roblox appeared first on The Twelfth Magpie.

More reading

• Back below 500p, is it time to consider BP shares again?
• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?
• This 7.5% yielding passive income share is at a 13-year low! Time to consider buying?

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Paul Summers has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Alphabet (C shares) and Apple. The Motley Fool UK has recommended Keywords Studios and recommends the following options: short March 2023 $130 calls on Apple and long March 2023 $120 calls on Apple. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Roblox shares: a great long-term investment?

Roblox is a gaming platform that allows users to both play and create games within an expansive virtual universe. Players are able (and encouraged) to make in-game purchases with the virtual currency ‘Robux’. With over half of under-16s in the US having used the platform, this is a great avenue for revenue.

Since listing on the NYSE, Roblox shares have looked like an exciting investment opportunity. The company expects an explosive Q1, pushed forward by 60% growth in active players and a doubling of revenue in comparison to last year. For 2021 as a whole, its expectations are a little more restrained. But roughly $1.4bn in revenue still represents growth of around 50% year-on-year. Impressive.

I’m also confident that Roblox shares would not be harmed by any negative pandemic developments. In fact, they could actually benefit if children are stuck at home once more (something we all hope doesn’t happen). The more likely scenario is that the world starts returning to normal in the coming months.

But this creates the very real risk that player numbers could start to decline to pre-pandemic levels.

Another risk is that Roblox shares are potentially overvalued. My colleague Edward Sheldon certainly thinks that its jump from a $4bn valuation last year to around $40bn poses a risk. This isn’t helped by the difference between its market cap and revenue resulting in a high P/S ratio of 27.

And don’t forget, all it takes is one viral gaming sensation to drive users away from the platform. Remember Fortnite?

Coupang: advantages and disadvantages

The performance of Coupang when it joined the NYSE was encouraging. The company is seen by many as the ‘Amazon of South Korea’, so demand was understandably high.

This interest comes on the back of a wonderful year for the relatively new company. Its revenue doubled in comparison to the previous year, reaching an impressive $12bn. It also managed to increase its market share from 18% to 25%.

However, both of these positives come with caveats. Its market share might be increasing, but strong competition makes innovation a must if it wants to avoid being smothered by the likes of Gmarket and WeMakePrice.

It also isn’t profitable. Despite its $12bn revenue last year, it actually ended up with losses of almost $500m. This is an improvement on the year before, but doesn’t guarantee that the company will become profitable any time soon.

This lack of profitability and the risk its competitors pose means I’ll probably hang back from Coupang for a while.

I’m willing to overlook the risk of overvaluation in regard to Roblox shares, though. Once the dust has settled over the next few days, I’ll probably be making an investment that I’ll maintain for the long term.

The post Should I buy Roblox shares? Or is this NYSE newcomer a better investment? appeared first on The Twelfth Magpie.

More reading

• Back below 500p, is it time to consider BP shares again?
• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?
• This 7.5% yielding passive income share is at a 13-year low! Time to consider buying?

Dan Peeke has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

That’s quite an impressive level of growth for only 24 hours of trading, in my opinion, even though it has fallen back a little since then. So, should I be adding the stock to my portfolio? To answer that question, let’s take a look at what Roblox does and the challenges that lie before it.

A gaming giant for younger audiences

Roblox is a video game company. But unlike a typical game developer, the players are the content creators. They can design and share their own mini-games, levels, and puzzles without needing any advanced programming knowledge. I think this is rather ingenious. Let me explain why.

Games usually only have a limited amount of content. And so, the player base begins to contract within a relatively short period of time. But by having a continuous stream of new content being created by the players, Roblox extends its playable lifespan at little expense beyond keeping the servers online and tools up to date.

In addition, this generates a network effect. As new players join the community they have an enormous library of experiences to enjoy. Some of these new players may try their hand at creating their own mini-game within Roblox. This in turn adds more content that attracts even more players and the cycle repeats itself. In my experience, network effects are powerful business drivers. Therefore I think the Roblox share price may be able to grow substantially in the future. But as with every investment, there are risks to consider.

Several risks lie ahead

Over the last 16 years since Roblox launched, its player base has grown to over 31 million daily active users. However, the vast majority of these players are children. This exposes the company to additional online legislation that provides greater protection to younger people when interacting online. Any breach of these laws would land the business with substantial fines, as well as significant reputational damage that would likely cause the Roblox share price to suffer.

Another risk to consider is how Roblox makes money. The game itself is actually free to play, but players can purchase in-game currency to unlock extra content through micro-transactions. Making the game available for free has undoubtedly helped in growing the player base. However, each additional player increases server costs and not all of these individuals will end up spending any money. Consequently, the firm is currently unprofitable, with no clear guidance as to when that may change. 

Should I buy Roblox at its current share price?

I really like the business model of Roblox, as it has some significant advantages over competing video game developers. However, as an investor, I think the Roblox share price is far too high.

The current market capitalisation of the company is just over $38bn. Comparing that to the $589m of revenue generated in the first nine months of 2020 places the P/S ratio at around 64. Personally, I think there are other growth opportunities available right now at far better prices, so I’m not adding the stock to my portfolio today. 

The post The Roblox share price surged 60% in its first day of trading! Should I buy the US stock? appeared first on The Twelfth Magpie.

More reading

• Back below 500p, is it time to consider BP shares again?
• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?
• This 7.5% yielding passive income share is at a 13-year low! Time to consider buying?

Zaven Boyrazian does not own shares in Roblox. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.