Investors in Virtual Farming Are Raking In Real Money

Alexis De Tocqueville wrote in his 1835 study Democracy in America, “Almost all the farmers of the United States combine some trade with agriculture.” (Roblox / X)

Fake farming has gone viral—again. And this time, it has helped send Roblox stock 171% higher in a year. I’ll attempt to explain. Warning: The following might be disturbing for Iowans, value investors, and the employed, especially 52-year-olds who used to wash dishes after school down at the old McCaffery’s bar and grill for their videogame funds, not like these boys today with their alpaca hairdos and their “bruh” and their pestering for Roblox money.

Once there was a game called FarmVille, and it, too, was a total waste of time. But it was popular, and lucrative, with a freemium model. Players could use virtual toil to earn in-game currency, which they could trade for farm resources. They could also spend real money to get premium goods in a hurry. FarmVille launched on Facebook in June 2009 and peaked within a year at more than 30 million daily users. It could have been even bigger had Facebook not been so slow to shift its focus to mobile phones. The original game was replaced with sequels. Its publisher, Zynga, parlayed its success into a 2011 initial public stock offering, and then, in 2022, into a $12.7 billion buyout from Take-Two Interactive.

Now forget about FarmVille. Today it’s all about Grow a Garden. The agricultural simulator launched on Roblox on March 25—during something called National Farmworker Awareness Week, as it happens, but that was by coincidence. Roblox is a platform for user-made games with simple, Lego-like graphics. It’s popular with kids for its social elements, like group play and chat. Grow a Garden recently blew past the Epic Games shooter Fortnite to set a record for most users playing simultaneously, at more than 20 million. Cumulatively, Grow a Garden has already been played more than 12 billion times.There are Roblox games that have been played more, but they took years to get where they are, versus a few months for Grow a Garden. “To date, there is arguably no other videogame that has generated this type of engagement in such a short span of time,” writes Barclays Capital analyst Ross Sandler.

Alexis De Tocqueville wrote in his 1835 study Democracy in America, “Almost all the farmers of the United States combine some trade with agriculture.” He should have been a game developer. Grow a Garden players start small with, say, a patch of carrots, and can patiently work their pixelated land until they accumulate enough in-game currency, called sheckles, to trade for fancier plants and pets. But the best stuff is rarely in stock. To gain access to it, players can instead spend Roblox’s platform-wide currency, called Robux. That one is bought with real money. J.P. Morgan estimates that Grow a Garden bookings, or Robux purchases, to date total $150 million, and that players spend an average of six cents per hour. The game’s owners are now making an estimated $20 million a month. These include a 16-year-old known online as BMWLux, who spent a week making Grow a Garden and who sold a stake and operational control in April after the game passed 1,000 simultaneous players.

What matters now for investors is how long this digital farm boom will last, whether it will lure new Roblox users, and how much of the increased winnings are priced into the stock. The answers appear to be: not long, some, and too much. The 2009 FarmVille craze subsided after a year or two, but produced a long tail of earnings after that. Roblox user growth has inflected higher since Grow a Garden launched, suggesting that the game is attracting new users, and not just cannibalizing other Roblox games. That will add 4% to this year’s companywide bookings, Sandler at Barclays predicts. But the ratio of the company’s value to its revenue has expanded by 72% since the game came out, leaving Sandler to conclude that the bonanza is more than priced in. He rates the stock, recently trading at 62 times next year’s projected free cash flow, at Equal Weight.

Let’s switch from Roblox to Crocs, mostly because they rhyme. BofA Securities analyst Christopher Nardone writes that there’s “still a lot to like” at 7.5 times earnings. Wait, what? A year ago, you could barely find a Crocs-less teen foot. The brand had once stalled by expanding into too many footwear categories, but new management had refocused it on core rubber clogs with holes for plugging in high-margin decorative charms, called Jibbitz. Teens embraced the ugliness, and sales shot higher. Now shares have fallen 30% in a year.

Go ahead and call the data police over this unnecessary comparison:

Last year, Roblox and Crocs weren’t too far apart on sales—approaching $4 billion for Roblox, and more than $4 billion for Crocs. But Roblox today has a stock market value of $74 billion, versus $6 billion for Crocs. Footwear makers shouldn’t be compared with online gaming companies, of course. But this particular footwear maker has 20%-plus operating margins, or more than double those of Nike.

BofA’s Nardone says that North America has turned into a replenishment market for Crocs, but that overseas markets, especially China, India, and Western Europe, can keep overall revenue rising. The stock’s selloff, he reckons, can mostly be chalked up to tariff concerns, not falling demand.

Whether the company can hold the line on Crocsflation will have a lot to do with where tariffs end up for Vietnam, a key footwear manufacturer. “If the core clog goes from $50 to $52.99 and they can drive brand heat through pushing marketing, I don’t think they’re gonna lose their core consumer,” says Nardone. He rates the stock at Buy with a price target that implies 27% upside.

Write to Jack Hough at jack.hough@barrons.com. Follow him on X and subscribe to his Barron’s Streetwise podcast.