News
Why trends are so intoxicating for investors – and dangerous: Morning Brief
This is the summary of today’s morning summary, which you can sign up to receive in your inbox every morning along with:
Roblox shares plummeted yesterday after the gaming platform company gave disappointing booking guidance.
You’d never know Roblox isn’t doing well in my house. My teenage son and my tween bounce between games like Blox Fruits and Pet Simulator V-Bucks (for Fortnite, owned by Epic Games).
On the other hand, most people reading this are about to Google “what is Roblox” like they do every quarter before forgetting. (It is an online gaming platform where users can create and play games.)
Roblox (RBLX) only went public in 2021, and its shares have fallen from a high of $130 per share in November of that year to around $30 now. This is because its annual sales growth rate has moderated to the mid-twenties percentage range.
It seems the jury is 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 said. And when it comes to trends that we interact with, see, and judge regularly, we develop opinions.
But what if the trend you know ends up being just a fad?
There are some standout examples lately. Take the Platoon (PTON), that pandemic-era darling that might be going the way of Jazzercise or Tae Bo (Google it, kids). The collapse of these stocks makes Roblox look like a gentle fall: from a closing high of $162.72 two days before Christmas 2020 to just over $4 now – a 97% drop. There is a good deal somewhereas we wrote in this newsletter, but somewhere the order of magnitude was misinterpreted.
Or consider Beyond Meat (PORND), whose shares have fallen nearly as much since the record it set during the height of the 2019 grilling season. The plant-based meat maker’s shares fell yesterday after it released its eighth consecutive quarter of year-over-year sales decline.
Counterbalancing the expensive exercise bike that now doubles as a clothes hanger, or the excess fake meat in the supermarket freezer, are the initially questionable proposals that have ended up being integrated into our lives.
The once-derided AirPods. Uber, which faced pushback from taxi drivers and passengers alike – not to mention outrage over revelations that it was tracking users after they exited their vehicles. Or Airbnb – do you want to rent your home to strangers?
The story continues
Discerning a fad from a more permanent element of our economy seems like a zero-sum game. And with 20/20 hindsight, you can see why things worked. Apple forced adoption by giving its users an ultimatum: cut the cord or buy Android. Uber used a war chest of venture capital to subsidize its adoption, aided by a good idea that users liked and actually found useful. Airbnb ended up stimulating a new type of real estate investment on the supply side and a more relaxed experience than renting a house or apartment on the demand side.
And sure enough, Peloton can keep up with its core user base. I still buy Beyond Meat burgers from time to time. Companies continue to operate. But for investors, either the trend hits sustainably or it may very well not occur at all.
So check back with me in a few years to see if Robux is still on the gift list – or if the next generation of kids have sustainably replaced mine by 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 9am-11am ET. Follow her on Twitter @juleshymanIt is to read your other stories.
brief morning image