Roblox Corporation (RBLX) develops and operates an online entertainment platform internationally. It offers Roblox Client, an application that allows users to explore 3D digital worlds, Roblox Studio, a toolset that allows developers and creators to build, publish, and operate 3D experiences and other content, and Roblox Cloud, a solution that provides services and infrastructure to power the human co-experience platform.

Playtika Holding Corporation (PLTK) is an Israel-based digital entertainment company that develops and publishes mobile games worldwide. The company distributes its games to customers through various web and mobile platforms and its own proprietary platforms.

The video games and virtual entertainment industry saw a huge increase in demand driven by the remote lifestyle compelled by the pandemic. The surge in daily active users over the last year incentivized companies to develop new and interesting video games. Also, the huge success of Microsoft Corporation’s (MSFT) Xbox Series X/S and Sony Corporation’s (SONY) PlayStation 5 last year motivated video game companies to focus on launching next-generation video game consoles. Though the economy’s reopening could draw some investor attention away from video games, because many people are expected to resume outdoor activities the industry is expected to witness continued growth, even if at a slower pace. The global video game industry is expected to generate $207.60 billion revenue by 2025.

Click here to check out our Video Game Industry Report for 2021

While RBLX lost 5.8% over the past month, PLTK lost 2.8%. But, which of these stocks is a better pick now? Let’s find out.

Latest Movements

After going public on March 10, RBLX partnered with Hasbro, Inc. (HAS), a global play and entertainment company, on April 13, to introduce its Roblox-inspired NERF blasters and its iconic Monopoly board game on the RBLX platform. Interesting games in the RBLX platform have attracted young users during the pandemic, thus driving an 85% year-over-year rise in daily active users in 2020, and a surge in monthly-app users. The RBLX-HAS venture is expected to attract more users and generate significant revenues.

On March 11, PLTK entered seven-year $1.90 billion Term Loan B and increased its revolving credit facility with a new five-year maturity to $600 million. The company intends to use borrowings from the new credit facility, together with the net proceeds from an offering of  $600 million in senior notes, to repay its existing $2.38 billion Term Loan B, and for other general corporate purposes. After this transaction, the company is estimated to have $1.5 billion in available liquidity to pursue growth investments and M&A opportunities. The company went public on January 15, 2021.

Recent Financial Results

RBLX’s revenue for its  fiscal year 2021 first quarter, ended March 31, 2021, increased 139.5% year-over-year to $386.98 million. However, its  loss from operations came in at $135.06 million, which represented an 85.1% rise year-over-year. Its net loss has increased 80.5% year-over-year to $134.22 million. And its loss per share increased 4.5% from the prior-year period to $0.46. RBLX’s cash and cash equivalents increased 218.7% year-over-year, as of March 31, 2021.

For its  fiscal year 2021 first quarter, ended March 31, PLTK’s revenue rose 19.6% year-over-year to $638.90 million. The company’s income from operations came in at $130.30 million, up 15.1% from the prior-year period. However, its net income was $35.70 million, and its EPS came in at $0.09, which represents almost no change year-over-year. Also, PLTK’s cash and cash equivalents  increased 604.4% year-over-year, as of March 31, 2021.

Past and Expected Financial Performance

RBLX’s revenue increased 105.8% over the past year. Also, the company’s EBITDA grew by 165.9% over the past year.

Analysts expect RBLX’s revenue to decline 3.2% year-over-year for the fiscal year 2021 fourth quarter (ending December 31, 2021), but increase 19.4% in 2021 and 21.6% in the next year (2022). Its EPS is expected to increase 16% year-over-year for its  next fiscal year, ending December 2022. RBLX’s EPS is expected to grow at a rate of 1.1% per annum over the next five years.

In comparison, PLTK’s revenue increased by 26% over the past year. Over the same period, the company’s EBITDA increased more than 5%.

Analysts expect PLTK’s revenue to increase 16.8% in its  fiscal year 2021 fourth quarter (ending December 31, 2021), 10.4% in the current year, and 7.7% next year. However, its EPS is expected to increase more than 23% in the fourth quarter, 38.1% in the current year, and 18.8% next year. Furthermore, its EPS is expected to grow at a rate of 79.5% per annum over the next five years.

Profitability

PLTK’s trailing-12-month revenue is 2.2 times  RBLX’s. PLTK is also more profitable, with a 70.6% gross profit margin versus RBLX’s 12.6%.

Also, PLTK’s 3.7% net income margin compares favorably with RBLX’s negative value.

Valuation

In terms of forward non-GAAP P/E, RBLX is currently trading at 110.29x, which is 371.5% higher than PLTK, which is currently trading at 23.39x. Also, PLTK’s 11.84x forward EV/EBITDA is significantly lower than RBLX’s 67.08x. In terms of forward EV/sales, RBLX’s 17.39x is 284.7% higher than PLTK’s 4.52x.

Thus, PLTK looks more affordable here.

POWR Ratings

While RBLX has an overall C rating, which translates to Neutral in our proprietary POWR Ratings system, PLTK has an A overall, which equates to a Strong Buy. The POWR Ratings are calculated considering 118 different factors, each weighted to an optimal degree.

Both RBLX and PLTK have  C Growth Grades, which is consistent with their modest earnings and revenue growth prospects. PLTK has an A grade for Quality, which is consistent with its significantly higher-than-industry profitability ratios. However, RBLX has a C grade for Quality, which reflects its negative net income margin and return on total capital.

Also, in terms of Value Grade, PLTK has a C, given its marginally higher valuation with respect to its peers. In comparison, RBLX’s Value Grade of D signifies its overvaluation.

Out of 23 stocks in the Entertainment – Toys & Video Games industry, RBLX is ranked #15 and PLTK is ranked #1.

Beyond what we’ve stated above, our POWR Ratings system has also rated both RBLX and PLTK for Momentum, Stability and Sentiment. Get all RBLX ratings here. Also, click here to see the additional POWR Ratings for PLTK.

The Winner

The rising popularity of video games is expected to continue in the coming months because these companies are adding popular and interesting games to their platforms to maintain and expand their customer bases. RBLX and PLTK are well-positioned to capitalize on the industry’s tailwinds given the release of new video games and video game consoles in 2021. However, PLTK appears to be a better buy based on its stable financials and higher profitability.

Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to access the top-rated stocks in the Entertainment – Toys & Video Games industry.

Click here to check out our Video Game Industry Report for 2021

RBLX shares were trading at $76.85 per share on Monday afternoon, up $5.90 (+8.32%). Year-to-date, RBLX has gained 10.58%, versus a 11.50% rise in the benchmark S&P 500 index during the same period.

About the Author: Sweta Vijayan

Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market. More...

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