Why trends are so intoxicating for investors — and dangerous: Morning Brief
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Shares of Roblox plunged yesterday after the gaming platform company gave disappointing bookings guidance.
You’d never know Roblox isn’t doing well in my house. My teenager and my tweenager bounce around between games like Blox Fruits and Pet Simulator X. My younger son’s birthday presents mostly consisted of a stack of gift cards for Robux (in-game currency), although they might have been evenly split with V-Bucks (for Epic Games-owned Fortnite).
On the other hand, the majority of people reading this are about to google “what is Roblox,” as they do every quarter, before forgetting. (It’s an online gaming platform where users can build and play games.)
Roblox (RBLX) only came public in 2021, and its stock has fallen from a high above $130 a share in November of that year to around $30 now. That’s as its annual sales growth rate has moderated into the mid-twenties percentage range.
It feels like the jury’s still out on whether the Roblox craze ends up being a flash in the pan or a lasting trend. It’s tempting as an investor to buy what you know, as Warren Buffett has famously said. And when it comes to trends that we interact with, see, and judge on a regular basis, we develop opinions.
But what if the trend you know ends up being just a fad?
There are a few high-profile examples as of late. Take Peloton (PTON), that pandemic-era darling that may be going the way of Jazzercise or Tae Bo (Google it, kids). That stock’s collapse makes Roblox’s look like a gentle slide: from a closing high of $162.72 two days before Christmas 2020 to just above $4 now — a slump of 97%. There’s a good business in there somewhere, as we’ve written in this newsletter, but somewhere the order of magnitude got misunderstood.
Or consider Beyond Meat (BYND), whose shares have fallen by about the same amount since the record it set during the height of grilling season 2019. The plant-based meat maker’s stock tumbled yesterday after it posted its eighth straight quarter of declining year-over-year sales.
Counterbalancing the expensive stationary bike now acting as a clothes hanger, or the glut of faux meat in the grocery freezer, are the initially questionable propositions that ended up becoming integrated into our lives.
The once-ridiculed AirPods. Uber, which faced resistance from taxi drivers and riders alike — not to mention outrage over revelations that it was tracking users after they exited vehicles. Or Airbnb — you want to rent your house out to strangers?
Discerning a fad from a more permanent fixture of our economy looks like a zero-sum game. And with 20/20 hindsight, you can see why stuff worked. Apple forced the adoption by giving its users an ultimatum: Cut the cord or get an Android. Uber used a VC war chest to subsidize its way into adoption, aided by a good idea users liked and actually found useful. Airbnb ended up spurring a new kind of real estate investing for the supply side, and a smoother experience than renting a house or apartment for the demand side.
And sure, Peloton can bump along with its core user base. I still buy Beyond Meat burgers on occasion. The companies remain going concerns. But for investors, either the trend hits sustainably or it might as well not hit at all.
So check back with me in a few years to see if Robux are still on the gift list — or if the next generation of kids has sustainably replaced mine playing Adopt Me or one of the other tens of millions of games on the Roblox platform.
Julie Hyman is the co-anchor of Yahoo Finance Live, weekdays 9 a.m.-11 a.m. ET. Follow her on Twitter @juleshyman, and read her other stories.
