Roblox (RBLX  ) made its debut on Wednesday through a direct listing and will trade under the symbol - RBLX. On its first day of trading, the stock closed at $69.50 per share which gives the company a valuation of $38.3 billion. Since then, shares have fluctuated between $73 and $69.

IPO Details

The company was last valued in the private market at $29.5 billion in a January funding round. Roblox's performance continues the healthy trend for video game stocks like Unity Software (U  ), Nintendo, Activision (ATVI  ), Electronic Arts (EA  ), and Take-Two Interactive (TTWO  ).

Roblox is a video game for kids which has been described as a "metaverse". This means it's an open world, where users can do a variety of activities such as creating their own games, playing other people's games, socialize, explore the world, etc.

Roblox shares opened 43% above the pre-IPO price of $45. The company has benefitted from the long-term increase in the popularity of video games as well as the pandemic when time spent gaming spiked. 2020 Revenue increased 82% to $923.9 million with its net loss increasing to $253.3 million from $71 million in 2019. One factor was the company tripling payments to game developers.

Roblox Valuation

Roblox is difficult to value. In the short-term, it's certain that time spent gaming will certainly decrease as schools reopen, and other activities are available once again. The company is looking to expand its userbase by adding features for adults like concerts, meetups, and educational experiences, although many are skeptical these attempts will be fruitful.

Roblox is forecasting revenue growth between 56% and 64% to between $1.4 billion and $1.5 billion. This indicates higher revenue per user, as it only expects user growth between 6% and 12%, while hours spent is also expected to be flat. Roblox has a forward price to sales multiple of 29. This is substantially higher than its competitors.

Outlook

Roblox's stock is essentially a bet that the company can successfully increase revenue per user. Roblox has 31 million users who spend an average of 2.6 hours per day. This is quite impressive and rivals many platforms in terms of time spent. Additionally, the company has much more upside in terms of revenue as well. Paying for digital items is also becoming normalized.

Of course, the major risk is that kids are fickle, and they may move onto new games. The company's current valuation assumes long-term growth and increased effectiveness at revenue generation. The latter could also negatively impact users' playing experience.