Roblox has ‘great content for kids but not for adults’: Analyst

Cowen Sr. Research Analyst Doug Creutz joins Yahoo Finance Live to discuss Roblox, the demographics of its users, its slate of content, and the metaverse.

Video Transcript

BRIAN SOZZI: Shares of Roblox are still seeing a lot of interest on Yahoo Finance after the gaming company got a boost yesterday from its September metrics report, showing daily active users grew 23% year over year. Cowen senior analyst Doug Kreutz joins us now to discuss. Doug, good to see you here. Is that move overdone, in your view?

DOUG CREUTZ: Yeah, it was a bit aggressive. The September numbers were fine. We now know that their bookings for Q3 are going to come in slightly ahead of sell side consensus and basically in line with where our numbers were, which is good. They've now returned to year over year growth after a few quarters where that wasn't the case. They had tough comps.

I think there were two things going on yesterday. One is that there had been chatter. We've been hearing that mobile gaming spending overall might have slowed down in September. That certainly didn't seem to be the case in their numbers. So that may have surprised people a bit. Also, I don't think it was widely understood that the KPIs were actually going to be reported yesterday.

So people who were short the stock may not have realized that that data was coming out on a Monday morning and got caught a little bit by surprise. And that's why you saw the kind of the size of the move.

BRAD SMITH: Interesting here. OK, so it's particularly what you mentioned around the spending in Roblox, that that kind of strikes me because there are all of these different experiences that are trying to move into that Roblox Metaverse, if you will. And does that kind of spell out that even despite a Chipotle or a Walmart saying that they want to be in the Roblox Metaverse, that as of right now, that's not necessarily going to do enough to woo the consumer to have them spend more money in a reality that is purely virtual, not being able to get some of that return on those dollars?

DOUG CREUTZ: Yeah, well, their spending is still very heavily driven by children age, let's say, 8 to 12. They've been trying to age up their population. They have had some success in that, but it's still largely a youth-driven experience. And I don't know that kids are really that excited about going to a virtual Chipotle or a virtual Walmart. I think they'd rather play games.

Their ability to age up their platform is still very much in question. And that's a big part of our longer term skepticism on the current share valuation.

JULIE HYMAN: Well, and Doug, that kind of brings me to the next-- I have kids who are in the demo for Roblox. I mean, isn't that sort of the problem here, is how we're framing it, right? You call it Metaverse, and there's all these implications. It's a video game company. Is it-- I mean, isn't it just a video game company, right?

DOUG CREUTZ: It's a bit different, right? I mean, you think about video game company like, let's say, Electronic Arts, right? They make games. They make "FIFA." They make "Madden." They make "Battlefield." Roblox doesn't actually make games, right? They own a platform. So in that sense, it's a little bit more like Facebook or Snap or something like that. And their platform is host to, instead of videos, it's host to interactive entertainment experiences.

If they were able to get really high quality gaming content, right, for adults, then they could probably bring adults to the platform. The trick is, how do you get that content, right? Here, if you're competing for a kid's attention, you know, you're competing with one set of interactive entertainment, maybe "Minecraft." But if you're competing with it for adults' attention, you're competing with "Call of Duty" and "Grand Theft Auto" and "FIFA" and some of the other games I just mentioned. That's a very, very high bar for a platform where the content, by and large, is being created by amateurs.

BRAD SMITH: So it sounds like Roblox needs entertainment to somehow come to-- and beyond gaming, entertainment to come into the Roblox Metaverse, if you will, to attract an older demographic that, perhaps, more has the propensity to spend, or at least the dollars to expend, within that Metaverse, maybe a Disney in all of the entertainment and the titles and the content, that could look like within a Metaverse.

DOUG CREUTZ: Yeah, if there's one thesis that underlies sort of my entire approach to covering stocks, it's that content is king. And if you want to be a great platform, you're going to need great content. I think right now, they have some great content for kids, but not for adults. And ultimately solving that problem is probably going to be very difficult.

JULIE HYMAN: That is why my kids are on it, and I'm not. Cowen senior analyst Doug Creutz, thanks so much. Appreciate it.

DOUG CREUTZ: Thank you.