The New York Stock Exchange has been busy recently. On March 10, online gaming platform Roblox (NYSE: RBLX) went public. The very next day, South Korea’s second-largest online retailer, Coupang (NYSE: CPNG), followed suit. Both were eagerly anticipated. Roblox shares jumped by 50% on their first day, while Coupang wasn’t far behind with a 40% increase. However, do I think they make good investments and will I buy?
Roblox shares: a great long-term investment?
Roblox is a gaming platform that allows users to both play and create games within an expansive virtual universe. Players are able (and encouraged) to make in-game purchases with the virtual currency ‘Robux’. With over half of under-16s in the US having used the platform, this is a great avenue for revenue.
Since listing on the NYSE, Roblox shares have looked like an exciting investment opportunity. The company expects an explosive Q1, pushed forward by 60% growth in active players and a doubling of revenue in comparison to last year. For 2021 as a whole, its expectations are a little more restrained. But roughly $1.4bn in revenue still represents growth of around 50% year-on-year. Impressive.
I’m also confident that Roblox shares would not be harmed by any negative pandemic developments. In fact, they could actually benefit if children are stuck at home once more (something we all hope doesn’t happen). The more likely scenario is that the world starts returning to normal in the coming months.
But this creates the very real risk that player numbers could start to decline to pre-pandemic levels.
Another risk is that Roblox shares are potentially overvalued. My colleague Edward Sheldon certainly thinks that its jump from a $4bn valuation last year to around $40bn poses a risk. This isn’t helped by the difference between its market cap and revenue resulting in a high P/S ratio of 27.
And don’t forget, all it takes is one viral gaming sensation to drive users away from the platform. Remember Fortnite?
Coupang: advantages and disadvantages
The performance of Coupang when it joined the NYSE was encouraging. The company is seen by many as the ‘Amazon of South Korea’, so demand was understandably high.
This interest comes on the back of a wonderful year for the relatively new company. Its revenue doubled in comparison to the previous year, reaching an impressive $12bn. It also managed to increase its market share from 18% to 25%.
However, both of these positives come with caveats. Its market share might be increasing, but strong competition makes innovation a must if it wants to avoid being smothered by the likes of Gmarket and WeMakePrice.
It also isn’t profitable. Despite its $12bn revenue last year, it actually ended up with losses of almost $500m. This is an improvement on the year before, but doesn’t guarantee that the company will become profitable any time soon.
This lack of profitability and the risk its competitors pose means I’ll probably hang back from Coupang for a while.
I’m willing to overlook the risk of overvaluation in regard to Roblox shares, though. Once the dust has settled over the next few days, I’ll probably be making an investment that I’ll maintain for the long term.