Barron's Streetwise - Roblox and Crocs. Plus, Van Eck On the Market

Episode Date: July 4, 2025

Jack talks fake farming and Jibbitz. And a top money manager explains how to invest now.  Learn more about your ad choices. Visit megaphone.fm/adchoices

If you look at government deficit as a percent of GDP, it's never been this high in all of U.S. history when unemployment has been this low. Now it feels good because it means that our economy seems exceptional, but that's only because we're spending so much money. Hello, and welcome to the Baron Streetwise podcast. I'm Jack Howe, and the voice you just heard, that's Jan Van Ecke. He has some thoughts on the national deficit and what it means for your portfolio. We'll hear more from him later.

First, I want to talk about Roblox and Crocs. It's a video game company and a footwear maker. They don't go together. It'll be awkward. Listening in is our audio producer, Alexis Moore. Hi Alexis. Hey Jack. What kind of a gamer are you?

Video gamer. Give me your whole resume. What are you up to? What are you getting into? Super Mario Brothers. Nintendo DS, Nintendo 64. Okay. That's all I got.

That sounds like it's from the way back machine. So you don't game now? That's something you used to use when you were a kid? Yeah, I read now I guess. Nerd. Oh, I'm sorry. Sorry, that's just a reflex. I'm sorry. Do you do any Roblox? Have you Robloxed? I've Robloxed before. Roblox stock, that's what I want to talk about. It's up 170% in a year. And I want to explain to people why. It has to do with fake farming. By the way, Roblox would probably take issue with me calling it a video game company. They describe themselves as a human co-experience platform, a human co-experience platform. And I love that because it could be anything. I mean, this podcast

is a Are you having an experience, Alexis, because I'm having one. I would even say I'm having a co-experience. Yes. Another line that they always put in the annual report is, our mission is to connect a billion users with optimism and civility. Which makes me think, why are you bringing up the civility? Is there a civility problem on Roblox? It's like, it's like our day old sushi is always fresh. Why are we talking about the freshness then? I hadn't thought about it until you said something. Well, there's a teensy civility.

I mean, look, it's an online gaming platform. So there's going to be some people on there who are mean and some people on there who are nice. And with this business, there's a lot of young kids playing these games. So there have been issues and criticism in the past about some of the communication that goes on there. Some of the messages being exchanged. What I can tell you about Roblox is a couple of things. First of all, the users make the games generally.

They are very blocky looking. The graphics are unremarkable and you'd say, well, why are kids into these games? You could see video games from big publishing companies that cost hundreds of millions of dollars to make. They have Hollywood type budgets. Increasingly kids want to play these very online multiplayer games that have unremarkable graphics. Of course, there was a shooter from Epic Games called Fortnite that's been enormously successful. And Roblox, I think, has really become a hangout for kids.

Young kids, as near as I can see, would rather play Roblox than watch a movie, watch a TV show, or even play some more sophisticated video game with better graphics. They just want to be there and they want to chat with their friends while moving their blocky little character around and doing things in the world. And depending on the game, that might be building stuff, accumulating stuff, taking stuff from other people. It's basically like the real world, only with magic swords and stuff like that.

But magic swords are not what we're talking about now. We're talking about farming. Fake farming has a history of going viral. There was once a game called Farmville. That was not a Roblox game. It was a game on Facebook and it came out in 2009. And that game too was a total waste of time from the perspective of someone like me,

but it was massively popular and lucrative. It had a freemium model. Players could use their virtual toil to earn in-game currency and they could trade that currency for farm resources, but they could also spend real money to get premium goods in a hurry. So Farmville launched on Facebook in June of 2009, and it peaked within a year at more

than 30 million daily users. And you can make an argument that it could have been bigger than that. This was at a time when Facebook was just starting to get serious about the need to transition its business to mobile phones from desktops. Whatever happened to Farmville? Well, it was eventually shut down. There were sequels, there was nothing quite like that first year or two in terms of popularity, but that game franchise did have a long tail of earnings.

The company behind the game, called Zynga, they parlayed their Farmville success into a 2011 initial public stock offering. And then three years ago, they got a $12.7 billion buyout from Take Two Interactive. That's a company that makes Grand Theft Auto. That's good money for fake farming. Okay, now put Farmville aside, we wanna talk about something called Grow

a Garden. This is another agricultural simulator and it was launched on Roblox on March 25th. It recently blew past Fortnite to set a record for the most users playing simultaneously, way over 20 million. Cumulatively Grow a Garden has been played more than 12 billion times. There are technically Roblox games that have been played even more, but they took years to get where they are. Grow a Garden has gotten there in just a few months. Here's a quote from Barclays Capital analyst Ross Sandler, To date, there is arguably no other video game that has generated this type of engagement

in such a short span of time. Just what do you do when you grow a garden? I'm glad I asked. I honestly have a hard time seeing the appeal, but I'm old. You basically start off small, growing like a patch of carrots, and then you harvest your carrots and you sell your carrots and get money to buy seeds for other crops. And do you try to accumulate enough in-game money, there's a currency called shekels.

And the idea is to accumulate enough shekels to buy really fancy plants and pets and stuff that will make your crops more successful. You wanna build a beautiful garden. The problem is this, first of all, it takes a long time to put together that many shekels. The second and bigger problem is that the best stuff that's on offer in Grow a Garden is almost never in stock.

So if you want to leapfrog other players, if you want to get your hands on the good stuff sooner, you got to spend a different currency and that's the platform wide currency of Roblox called Robux. And you don't earn that in games, you buy it. You spend real money to buy Robux. What you really do is you walk your 10 year old unemployed self with your alpaca hairdo over to your dad and you say, bruh, I need some is it is it just me? Too specific? So kids ask their parents for Robux and the parents say, no way. I'm not giving you cash for virtual seeds or swords.

But some, I guess, say yes, enough of them that bookings to date for the Grow a Garden game are $150 million, according to JP Morgan. Bookings meaning purchases of Robux. The owners of the game are making an estimated 20 million dollars a month from it and those owners include the 16 year old who spent a week making the game. His online handle is BMW Lux. A month after launching the game when it had passed only about a thousand simultaneous players, BMW Lux sold a stake in operational control of the game. So I don't know what the revenue split is now, but there's a lot of money being made.

So much that it has helped propel the stock much, much higher. And now the question for investors is, well, I guess there are a few. How long will this fake farming boom last? Is it bringing in new players or is it just taking players from other Roblox games? And to what extent is this agricultural bonanza already reflected in the stock price? Let me take those in order. How long will it last? Well, if we go by Farmville, most of the action was done within a year or two. But like I said, it kept making good money for years after that. A game like this can also have positive follow on effects. Developers see all that money being made and they say, well, I'm going to make some new games too. Is Grow a Garden just cannibalizing other Roblox games?

I don't think so. There was a positive inflection in the growth rate for overall Roblox users around the time the game came out. So it seems to be bringing in some new players or maybe reactivating some players that hadn't played for a while. And to what extent is it already priced in? A lot, it appears. Barclays has some math on that.

They estimate that Grow a Garden will add 4% to this year's company-wide bookings for Roblox. But they also write that the company's valuation, the ratio of what's called its enterprise value to its revenue, that has expanded by 72% since the game came out. So 4% more money being made and a 72% higher valuation. That leaves Barclays concluding that Grow a Garden is already priced in and then some. The stock goes for 62 times next year's projected free cash flow.

Barclays has it at equal weight. And that is Roblox. Let me just turn quickly from Roblox to Crocs and not just because they run. Croc stock has been moving in the opposite direction. I recently saw it down 30% in a year. That is surprising to me because a year ago, I felt like you could barely find a teen foot in America that wasn't wearing a Crocs, a rubber clog. This is a company that had stalled out in the past. I think they probably expanded to too many footwear categories. They got new management and refocused the company on the core clog and on personalization.

Crocs have a lot of holes in them. You can buy these decorative charms. They're called gibbets. So you can bling out your Crocs with gibbets to show people whatever you're into. If you feel like Crocs are not the most attractive footwear, then I not sure that Crocs covered in gibets are moving in the right direction for you, but teens really embraced the ugliness and sales shot higher and it definitely helped that those gibets had great profit margins. I want to make one comparison between Roblox and Crocs. You can call the data police now if you must.

You should not make comparisons like this between dissimilar companies. A footwear company is going to trade at a different valuation than an online services company. But I'm just struck by the fact that last year, sales for these two companies were not that far apart. For Roblox, they were approaching $4 billion, and for Crocs, they were a they were approaching $4 billion and for Crocs they were a little

more than $4 billion. And if you look today, Roblox has a stock market value of $74 billion that's compared with $6 billion for Crocs. Again, I can totally understand why a software company would be worth more, but I guess the question is, has Roblox gotten too expensive or has Crocs gotten too cheap or both? B of A securities analyst Christopher Nardone wrote about Crocs that there's quote, still a lot to like at seven and a half times earnings. I reached out to Chris to talk about that. Crocs is the only footwear stock trading in the public markets that has a single digit P.E. that's projected to grow sales positive and has an over 20 percent margin. The big underappreciated

asset in my view of the stock is how much cash this business generates. It's very high margin, pretty capex light, and they drive a lot of cash to return to shareholders and also to reinvest back in the business. By the way, seven and a half times earnings for crocs that compares with about 22 times earnings for the broad US stock market. Chris says that North America has turned into mostly a replenishment market for crocs, but that overseas markets, especially China, India and Western Europe, can keep overall revenue rising. So what about the stock sell off? Chris says it can mostly be attributed to tariff concerns, not falling demand. I think near term, the big, big concern is just around the tariff environment, where those rates settle out, how they respond in terms of potentially raising pricing, and then what the consumer does. respond in terms of potentially raising pricing and then what the consumer does. Right now we're in this temporary 10% tariff zone for all countries ex-China and it's any

day now where we could get an update. Then Crocs, I think the important flag here is their biggest source in country is Vietnam, right? That's where most of footwear is produced for the industry. So that Vietnam rate moves from 10% to a somewhat higher number in the 20s. I think Crocs is going to have to increase pricing. Of course, there probably will be a little bit of elasticity from that. But if the core clock goes from $50 to $52.99 and they can drive brand

heat through pushing marketing, I don't think they're going to lose their core consumer. Thank you, Chris. We did get some clarity this past week on that Vietnam tariff rate. A new deal puts it at 20 percent and Croc stock traded higher after that announcement. Okay, that's Crocs. We did roblox. Should we say anything about locks or socks and whether you should invest in a box with

a fox or we just should we take a quick break? A quick break is warranted. When we come back, we'll have my conversation with Jan Van Eck. Welcome back. Do we have a big, beautiful budget, Bill? We're close to it at the time of this recording. It seems like it's in the home stretch. We've talked about it. There are some mixed feelings out there about this budget, not just between Democrats and Republicans,

but among Republicans about the, mostly the deficits that are associated with this budget. At the same time, we've got the U.S. stock market hitting all-time highs. So are we over for now concerns about tariffs, the deficit, or if stocks run up too far too fast and what about bonds? To talk about that I reached out to VanEck. It's a 70 year old investment firm known for its funds that focus on gold and Bitcoin, overseas markets, energy. I spoke with

the CEO and son of the firm's founder. His name is Jan Van Eck. Let's hear some of that conversation now. The two biggest things I see happening in the world, one of which is the US budget deficit. And I'm not sure the clouds have passed on that. The US has a lot of financial obligations. And the way I put it starkly in some of my client meetings is, do you think the United States is going to default in the next 10 years? And everyone says no.

And then I say, well, you know, social security is going to be underfunded and we'll have to cut payments in 2033, which was within 10 years to about 80 cents on the dollar. I would say that's a default on their obligations. The timing in financial markets is impossible to know. So I just want to include a hedge on that in my portfolios, which is a combination of gold and Bitcoin. Brent O'Hara What kind of allocation should we be talking about? I mean, for the person out there who's a 60, 40 investor, and they don't have any particular gold holdings or Bitcoin holdings, what would you tell a person like that?

Well, the first thing I think that's underappreciated is if you go back to when gold became delinked from the dollar, if you look at stocks, bonds, and gold, gold has actually outperformed bonds. So bonds at 40% of your portfolio feels high to me. And then I guess I'm not a gold bug. I may sound like a gold bug, but it's only because government spending is so high. And if you look at government deficit as a percent of GDP, it's never been this high in all of US history when unemployment has been this low. We've never been on such a spending spree ever relative to the size of our economy. So when emerging market countries do this, their debt starts falling in value precipitously.

Now it feels good because it means that our economy seems exceptional, but that's only because we're spending so much money. So you can increase interest rates dramatically like we did in 2022, and we don't get a recession. Why? Because the government's spending so much money. Why is the stock market going up? Because the government's spending so much money. Now, as I said, this can go a super long period of time. We don't know when the markets are going to react. We do know the dollar has been weakening. We do know that gold is rallying. We know that Bitcoin is rallying.

And we also know that credit default swaps, which is the insurance of whether the US pays its debts, is relatively elevated. It's not as high as during the financial crisis, but it's way more elevated than it's been over the last decade. How bearish on bonds are you? I mean, would you tell someone that bonds are no longer the thing for hedging a

stock portfolio that they shouldn't bother with bonds, that they should reduce their allocation to bonds? What would your bond advice be for, you know, let's say just a perfectly average saver who wants to know what to do? I feel like especially now that short-term rates are so high, I would not want to own long-term bonds. I'd have all 40%. I wouldn't have 40 to begin with.

I'd have half that. And whatever I had, I'd have it to short end, meaning, you know, short-term interest rates. I wouldn't own 10-year bonds. That's just me in the US. 60, 20, and now we have 20 left over. Is all that 20 going in gold and Bitcoin portfolio, or is that too much? No, no, no. We have about 10% in what we call real assets.

And the largest chunk of that by far is gold bullion, which offers lower correlation and less volatility than some of the other components in your real assets bucket. I would supplement some of that, Jack, also with international bonds. So just before I complete the sentence. So of the 20% that we're missing out of 60-40, I'd put 10 in real assets and then probably 10 in other kinds of alternative income, maybe with duration, but not US treasuries. Everything that you describe about government debt, it's like, it's not even

a matter of debate, right? The numbers are the numbers. And it's frightening to think about. I mean, the only thing that's not frightening to people is just the fact that it's been scary for so long, we've kind of put it aside and forgot about it, right? People have been saying for decades, this is a problem. And, you know, the financial world hasn't gone kablooie yet. So, you know, people kind of look around and say, Hey, I don't know. Maybe we're getting away with this. How long can we get away with it? But I totally take your point about.

It does look like there's trouble brewing. What is, what does that mean? Go ahead. Point number one is we have no idea about the timing when it comes to this, right? It could be a Japan 20-year situation where we have this high debt to GDP. All I would say though is that during the housing crisis and the financial crisis relating to housing prices, a lot of people knew that that trend was unsustainable. A lot of people knew that there was way too much leverage going into the housing market.

of people knew that there was way too much leverage going into the housing market. And this fiction that housing prices only went up was, even though technically true for 50 years, was going to end. We just didn't know when. So that's why I keep talking about it because it's this problem that's hiding in plain sight. But if you added gold, Bitcoin, and some of these diversifiers to your portfolio, you've made a lot of money over the last two years. So it's paid for you to have that hedge against this problem. So I just want to know now how I should feel about the stock portion of my portfolio, because we've done very well in stocks for decades now, especially US stocks.

They've led the world. People have pointed out, it points along the way, you know, around 2,000 people said, look, U.S. stocks have outperformed for so long, it can't possibly continue. And here it's continued for another 25 years. So I just wanna know, if I'm a long-term saver, I have maybe, let's say, a couple of decades to go,

can I still feel okay about that stock portion of my portfolio and in particular about US stocks? Look, rule number one of investing is it's very hard to predict the future so you should pretty much always be invested unless you have a very strong compelling reason not to. So that's point number one. I think last summer around literally this time, we had I think last summer around literally this time, we had a multi-decade dispersion jack where large cap growth versus large cap value peaked at the same levels as they did in 1999. So at that point, I said, all right, stop, take your equity portfolio and move away from the Mag-7, move away from Nvidia because these valuations are crazy.

Nvidia was at 50 times sales. Things like that shouldn't be allowed on polite podcasts. That's just crazy. So indeed, Nvidia corrected about 35%. But these are unbelievable trends and I don't think we have that kind of extreme signal right now, so just stay invested. And in fact, I think it's worthwhile doing a thought experiment on some of these Mag-7 or AI-winning companies where the network effects are just dramatic.

What do I mean by that? What I mean is if an AI bot is going to replace what you and I do for a living. You and I can't go start a financial services specialty AI company because all the traffic will go to the general chat GBTs and perplexities. And because they get the traffic, their models will be smarter, their answers will be better. In other words, technology and those companies could actually take a bigger share of the stock market. Like, you can't take that off the table. If you look at the history of US stocks, financials banks used to dominate.

They were like almost 90 plus percent of the market. And then railroads became over 60% of the entire stock market for several decades. You obviously think a lot about AI. Is this something that is going to be a net plus or a net minus for the economy and the stock market? And what I mean by that is at some point AI, I mean, it's already putting some people out of jobs. So some companies are going to be preposterously wealthy and they're

investors, some wage earners are gonna lose their incomes to this technology. What's the net net going forward over the decade to come? Where do you think it shakes out? Is it good for us or bad for us financially? Well, financially, there'll be winners and losers, like you said. The beauty of the U.S. financial markets

is if you save money and invest, you can participate in those trends. So, invest in these equities. Don't be short the Mag-7 or Nvidia, right? There will be a lot of winners and losers, but the thing is, when you look at the labor market over time, there've been tremendous shocks from technology and demographics over our history. And it's very hard to see that on a net employment level. And then the demand for certain jobs is going down, right? Microsoft's labor force has been kind of flattish

over the last couple of years. That's tremendous for that stock, right? So tech workers probably in middle management are definitely at risk. Jan, thanks so much for taking the time to speak with me. Thanks, Jack. It's good to see you. If you have a question that you'd like to hear played and answered on the podcast, you can send it in. It might be on a future episode.

Just use the voice memo app and send it to jack.how, H-O-U-G-H at barons.com. Thanks for listening. Alexis Moore is our producer. You can subscribe to the podcast, Apple podcast, Spotify, or wherever you listen to podcasts. If you listen on Apple, you can write a review. See you next week.