RBLX: Roblox vs. Skillz: Which Video Game Stock Is a Better Buy?

In the last year, companies in the gaming industry have crushed broader market returns. The COVID-19 pandemic acted as a massive tailwind for gaming stocks. As people all over the world were confined to their homes due to economic lockdowns, entertainment options were few and far between, driving demand for traditional and mobile gaming.

However, as vaccine rollouts gain pace and normalcy returns in the upcoming months, do gaming companies remain a solid bet? Will the growth rates decelerate for these firms and will profit margins contract?

Here we compare and analyze two stocks part of the gaming space- Roblox (RBLX) and Skillz (SKLZ) to see if they remain a good bet for 2021 and beyond.

Roblox impresses with Q1 results

Roblox is a gaming company valued at a market cap of $47 billion. Its target market is the pre-teen population, a demographic that has spent a significant amount of time at home in the last 15 months.

This allowed Roblox to end Q1 with daily active users or DAUs of 42.1 million, up 79% year over year. Its DAUs rose to 43.3 million in April. The number of playing hours spent on the Roblox platform almost doubled year over year to 9.7 billion. Further, the growth in user engagement was also driven by older players over the age of 13 that now account for 49% of Roblox’s total player base.

In Q1, the company’s revenue was up 140% year over year at $386.97 million compared to sales of $161.57 million in the year-ago period. This was far higher than Roblox’s revenue growth of 80% in 2020.

Despite its enviable top-line growth Roblox reported a net loss of $134 million in Q1 compared to $74 million in the prior-year period. Its net loss also tripled to $253 million in 2020. Roblox attributed a rise in infrastructure costs as well developer exchange fees to its widening losses.

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Analysts tracking Roblox expect the company to increase sales by 183% to $2.61 billion in 2021. However, this growth rate is forecast to decelerate to just 19.3% in 2022. Comparatively, its bottom line is estimated to improve from a loss per share of $0.48 in 2020 to earnings of $0.81 per share in 2021. It suggests Roblox is trading at a forward price to sales multiple of 18.07x and a price to earnings multiple of 105x which is steep.

Skillz is a mobile esports platform

Valued at a market cap of just over $6 billion, Skillz is a mobile esports platform. The stock is down 64% from record highs making it attractive to contrarian investors. In the first quarter of 2021, Skillz reported sales of $84 million which were higher than the management estimates of $80 million.

Revenue rose 92% in Q1 which allowed Skillz to increase its guidance for 2021 to $375 million, up from its previous forecast of $366 million. Skillz is also reporting a net loss and its adjusted EBITDA loss widened to $31.1 million, from $14.6 million in the prior-year period. Its average MAUs (monthly active users) in Q1 stood at 467,000, up from the company’s forecast of 450,000.

Analysts covering Skillz expect sales in 2021 to rise by 63.5% to $376.15 million and by 46.4% to $551 million in 2022. It suggests that Skillz is trading at a price to sales multiple of 16x which is lower than Roblox.

The verdict

Both Roblox and Skillz are part of a rapidly expanding addressable market. While Roblox is trading at a higher valuation, it’s also expected to turn profitable by the end of 2021. Alternatively. Skillz’s revenue growth in 2022 is forecast to decelerate at a slower pace compared to Roblox.

However, in case Roblox successfully expands its international markets, its top-line growth will thump market expectations, making it a better gaming stock to buy right now.

RBLX shares rose $0.31 (+0.38%) in premarket trading Monday. Year-to-date, RBLX has gained 19.42%, versus a 11.95% rise in the benchmark S&P 500 index during the same period.

About the Author: Aditya Raghunath

Aditya Raghunath is a financial journalist who writes about business, public equities, and personal finance. His work has been published on several digital platforms in the U.S. and Canada, including The Motley Fool, Finscreener, and Market Realist. More...