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Is Roblox Corp. (RBLX) A Smart Long-Term Buy?

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Tao Value, an investment management firm, published its third-quarter 2021 investor letter – a copy of which can be downloaded here. A return of -7.53% was delivered by the fund for the Q3 of 2021, compared to its benchmark, the MSCI All Country World Index that delivered a -1.26% return for the same period. You can take a look at the fund’s top 5 holdings to have an idea about their best picks for 2021.

Tao Value, in its Q3 2021 investor letter, mentioned Roblox Corporation (NYSE: RBLX) and discussed its stance on the firm. Roblox Corporation is a San Mateo, California-based video game developer with a $47.1 billion market capitalization. RBLX delivered a 5.90% return for the past month and it closed at $84.02 per share on October 29, 2021.

Here is what Tao Value has to say about Roblox Corporation in its Q3 2021 investor letter:

"Roblox is a new position of “Mindful Compounder” category and is a new breed of business that is hard to define at this point. It started with gaming but has the potential to evolve to a new being for human society. Roblox management calls it “human co-experience” and many practitioners call it “metaverse”.


The company made many “drastic and rational” decisions which shows deep mindfulness - an important trait I look for. The first thing caught my attention is management’s attitude towards security, privacy & trust. Different than Facebook, Roblox took trust and security seriously very early on. So serious that they actually report “Infrastructure and Trust & Safety“ as an accounting item in its operating expense breakdown, indicating that they see the trust & safety is an integral part of the infrastructure of the virtual world. Roblox didn’t just say it, but also did so. For example, Roblox doesn’t have voice chat functionality, which is a key engagement feature and is almost a standard setup for almost all gaming platforms. Yet it is also a feature that is very hard to moderate in real time with old day technologies and can be abused heavily. Roblox made a conscious decision to put security/trust before product stickiness and deferred the audio chat until recently (Roblox recently rolled out an alpha test moderated by AI-based technologies).

Roblox, as any other large social platforms (which becomes the human society itself), will unavoidably have the dark side of the humanity. One Wired article revealed the story about “How 'Roblox' Became a Playground for Virtual Fascists”. Yet it is how the platform sees and treats the problem matters. In Roblox' case, it seems to me that they have a very strong stand on their responsibility (to be the trustee of its users). According to this article, a Roblox spokesperson said the company reviews “every single image, audio file, and video before it is uploaded.” Accordingly, Roblox disclosed that it has 3600 people (albeit outsourced) working on trust and safety, compared to only 1200 full time employees..." (Click here to see the full text)

Photo by Onur Binay on Unsplash

Based on our calculations, Roblox Corporation (NYSE: RBLX) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. RBLX was in 49 hedge fund portfolios at the end of the first half of 2021, compared to 46 funds in the previous quarter. Roblox Corporation (NYSE: RBLX) delivered a 5.21% return in the past 3 months.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 115 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, the demand for helium is soaring and there is a helium supply shortage, so we are checking out stock pitches like this emerging helium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage.

Disclosure: None. This article is originally published at Insider Monkey.