Roblox Versus Grass, GM’s EV Spend-A-Thon & Peloton’s Pirate Problems
Roblox? More Like Woah-Blox
Great Ones, y’all know I’m a lifelong gamer. I grew up in the ancient times of video games … back when our games came on 5.25-inch floppy disks … if they came on disks at all. Anyone else learn BASIC or Pascal just to program and play games on their Apple IIc or Commodore 64?
I’ve played bad games — Atari’s E.T. the Extra-Terrestrial — and excellent games — Destiny 2: Forsaken. I’ve even played Minecraft and Roblox (NYSE: RBLX). While neither game is my cuppa tea — I just don’t jive with free-roam, free-building games — I can see the appeal to a certain demographic.
But what gets me is how Roblox is a publicly traded company. And I think investors are going to come to that realization as well, sooner or later.
The biggest issue with Roblox is its timing. The company went public during the pandemic, i.e., the biggest period of growth for gaming companies I’ve ever seen. The downside to this growth, however, is that it’s not sustainable. People are already going outside again, and that is bound to have a negative impact on the gaming market.
Want proof? Just look at Roblox’s recent daily active user (DAU) update.
Last night, Roblox said it had 43 million DAUs in May. While that figure was up 28% from 2020, it was down 1% from April — a sign that users are starting to move on from the game and back into the real world.
And that’s just the beginning of Roblox’s concerns. The company also said it expects bookings per DAU to fall 2% to 3% for the year this quarter. In other words, Roblox users are spending less money and time on the game.
This trend also plays out when you look at mobile gaming revenue. During the first quarter, research firm App Annie reported that Roblox was the top-grossing mobile game. Since then, however, Roblox has fallen way behind, dropping to fourth in overall revenue, fourth in App Store revenue and tenth in Google Play revenue.
One of the biggest reasons for this drop is Roblox’s core demographics. More than half of all Roblox gamers are under 12 years old. I’m sure that during the pandemic lockdowns, it was easy to just pay Roblox to entertain kids for hours a day. But now that those lockdowns are over and summer is here, those kids are probably all touching grass now.
What’s more, unlike Minecraft’s demographics where there are a hefty number of teens and younger adults playing, Roblox’s older user base is thin at best and practically nonexistent at worst. Basically, Roblox’s success depends on parents for revenue — and we all know times are getting tough for parental bank accounts these days.
So, here’s what I see for Roblox:
The company will continue to see declining DAUs before eventually stabilizing sometime next year when year-over-year comparisons normalize. That pandemic was a real kick in the analytics, wasn’t it?
Once activity normalizes for Roblox, the company will realize that it needs to do something to spur growth and maintain RBLX’s lofty valuation. Given the company’s core demographics, that will be hard to do.
Eventually, Roblox will either look for a buyer or have one swoop in to take over. My bet is that Microsoft (Nasdaq: MSFT) snaps up Roblox to go alongside Minecraft in its Xbox subscription gaming service. But Electronic Arts (Nasdaq: EA) and Activision (Nasdaq: ATVI) are also potential suitors.
As a RBLX investor, if you can hold on for a potential buyout, you’ll likely be rewarded … depending on how far the stock falls in the meantime. If you don’t have that kind of patience, there are much better investments in the video game market, such as MSFT, EA or even ATVI.
Editor’s Note: “Solar-on-Demand” Set To Power $16 Trillion Energy Revolution
This new technology is being hailed as a game-changer. It allows solar power plants to absorb much more energy during the day and pump it back out whenever it’s needed … even hours after the sun’s gone down.
In short, it makes solar power work “on demand.” And now, the world’s billionaires are scrambling to get in on it… Click here to see why.
The Good: No, We’re Spending More!
We got into a weird dynamic in the U.S. electric vehicle (EV) market this year. Everyone from Ford Motors (NYSE: F) to General Motors (NYSE: GM) is in a PR race to prove that they’re spending more on EVs than the competition.
But Ford and GM have taken this EV spending rivalry to new heights. Back in January, GM pledged to spend $27 billion to develop 30 new EV models by 2025. Not to be left out, Ford upped its EV spending game by $8 billion to $30 billion last month.
Naturally, GM couldn’t let this affront to its EV spending leadership stand. So, this morning the Detroit darling said that it would boost its EV spending by 30% to $35 billion by 2025.
I have to say, I’ve never seen Wall Street cheer billions in new corporate spending as much as this EV spending spree. Fundamentals? In the back seat. Realistic timelines for deliverability? In the trunk.
Still, I guess you’ve got to start somewhere — especially when Tesla and a whole slew of Chinese upstarts already have a massive head start.
Personally, I’m applauding this new EV arms race. It’s good for investors over the long run, as it shows that Detroit’s finest are done letting others lead the auto market. So, if you’re jonesing for an EV investment idea that isn’t Tesla, both GM and Ford are finally worth considering.
And if spending more on EVs floats your boat, GM is the place to be … for now.
The Bad: A Cloud By Any Other Name…
…would it smell as sweet? Wall Street answered that question today with a resounding “NO!”
Oracle (NYSE: ORCL) released its quarterly report last night, and while it beat on both the top and bottom lines, the company doesn’t seem to know quite how to break out cloud revenue.
“They’re getting better in cloud. But they lumped it all together and call everything cloud,” said Dan Morgan of Synovus Trust.
For instance, Oracle’s revenue from cloud services and license support rose 8% to $7.4 billion, beating estimates. However, that figure not only includes cloud revenue but also maintenance fees for traditional software on clients’ corporate servers. That last part is definitely not cloud revenue, no matter how much Oracle argues that it is.
This kind of thing drives Wall Street nuts. Analysts like things broken out in nice neat categories. Just ask ol’ Danny Boy: “We can’t even hang our hat on, ‘OK the cloud business is growing at a faster rate,’ even if database growth is like 3%.”
And if that wasn’t enough, guidance wasn’t what Wall Street expected. For the current quarter, Oracle expects earnings of between $0.94 and $0.98 per share, well below consensus estimates for $1.03 per share.
Oracle says the lower guidance is due to increased spending on its cloud business, but given how it doesn’t actually break out cloud revenue, how would we even know?
The thing is, I want to like ORCL as a cloud investment. Oracle dominated the database game pre-cloud. But the company was so late to the online game that it’s now playing a massive game of catch-up … and it’s playing poorly.
ORCL fell roughly 6% following its quarterly report.
The Ugly: Peloton’s Privacy Probs
I used to feel a little high-blood-pressured pulse in my temple every time people were shocked to hear that their phones, laptops, Alexas, smart fridges and stupid digital mirrors are just thinly veiled surveillance devices.
Better yet, that the supposed “convenience” of these interconnected devices was, in fact, their digital Achilles’ heel.
Bring up the looming threats to digital security and no one bats an eye. But you hack into a Peloton (Nasdaq: PTON) bike, and everyone loses their damn minds.
And that’s why I can’t help but crack up when I hear that McAfee — the security software company founded by everyone’s favorite tycoon-turned-fugitive-turned-crypto-peddler, John McAfee — found a glaring security flaw in Peloton’s bikes.
Since Peloton “failed to validate that the operating system loaded” on its bikes, the USB port could let attackers access the bike’s camera and microphone, install fake apps that skim info and load other malicious software.
Not only do you get your personal data stolen, but now some creepy hacker in Siberia’s watching you sweat it out to The Chi-Lites? No, thank you, sir. Have you seen her? Yes, through the webcam.
I can’t figure out what’s funnier: That a stationary bike has a security hole because people want literally every device they own to be online, such that not even your workout gear is safe … or that McAfee was the one that found the security flaw.
I mean, McAfee is a security flaw, if there ever was one — this is literally the blind leading the blind over there.
What do you think, Great Ones? Is the worry over Peloton’s security patchwork much ado about nothing? Are you a Peloton diehard even amid the reopening? Do you still use McAfee antivirus software? (If you’re game on that last one … we need to have a talk.)
Drop me a line anytime: GreatStuffToday@BanyanHill.com.
It is Wednesday, my Great Ones!
Here we go again: Another chance for you to sound off on Wall Street’s latest talking points and the best in water cooler chitter-chatter … or whatever we feel like polling you on each week.
In last week’s poll, we wanted your thoughts on rocket-propelled military cargo … because it was much more interesting than bringing up the inflation conversation yet another time. So, rockets … cargo … possible nuclear war due to mistaken identity… How did your fellow Great Ones feel about the Pentagon’s plans?
An unsurprising 63.6% of you either remember WarGames or, you know, don’t want to risk mutually assured destruction just so the military has faster shipping.
Another 20.5% of you silly geese think Elon Musk has rocket-propelled junk, and with his budget, I wouldn’t argue otherwise (or want to know).
Oh, and I poured out a star-spangled Rip It energy for the 15.9% of you who are excited that we’re finally catching up to Call of Duty (COD). I admire and envy the optimism … if you want to call it that.
Also, regarding COD: If you’re wondering why anyone would want to catch up to fish in that last question, our next Poll of the Week is for you.
We’re talking up video games today (duh, I know y’all didn’t gloss over my Roblox run-down up top).
Out of all the trades and plays you Great Ones tell me about in the inbox, video game stocks are, simply, nowhere to be seen. Roblox, big wigs like Activision Blizzard, Sony, Microsoft, the entire world of esports … you have many a way in on the gaming trend. But hardly ever do y’all tell me about ‘em.
So, I have to ask: Do you care about video game stocks?
Click below and let me know:
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Also, if you have more thoughts on your mind than a mere poll can satisfy, let me know!
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Until next time, stay Great!
Editor, Great Stuff