- Like most tech stocks, Roblox (RBLX) has bounced back in recent weeks.
- A recent analyst report makes the case why additional runway may be limited in the near-term.
- Even if you believe the market will once again reward it for putting growth over profitability, you likely have plenty of time to buy.
As is the case with tech stocks overall, it’s tough to determine whether Roblox (NYSE:RBLX) will continue to rebound in the coming months. Or, if RBLX stock will tread water, or even head lower, in the short-term.
Shares in the company, which operates a virtual world game of the same name, were crushed during the Fall/Winter tech stock sell-off. Not to mention, due to the fading of “meta mania,” or the speculative bubble that briefly emerged in metaverse-related stocks.
Despite its latest boost, it still trades well below its all-time high. With this, you may think it’s best to snap up a position. But while more bearish forecasts may not play out, that’s not to say a big surge is just around the corner. Instead, its performance between now and the end of 2022 could play out in line with a recent analyst rating on the stock.
That is, languish at or near current levels, as the market waits for its growth to kick it into high gear once again.
RBLX Stock and The Sell Side’s Latest Take
According to Finviz.com, three sell side firms initiated coverage on Roblox during March. But the one that right now is attracting the most attention is the most recent one, issued by a pair of analysts (Eric Handler, Rohit Kulkarni) from MKM Partners on Mar 30.
Handler and Kulkarni give RBLX stock the equivalent to a “hold” rating, and a $55 per share price target. Their rationale? While the analysts believe the company still has a massive total addressable market (as much as 1 billion users in the long run), the company’s growing pains will continue in the near-term.
Wall Street’s estimates currently do not fully take this into account. The sell side will wind up lowering its revenue and earnings projections. In turn, Roblox will struggle to move much higher than what it trades for today. On the same day this report hit the street, shares took a 5.5% dip.
Yes, it was a down day for the market. Yet with major indices posting much smaller declines during the session? This report appears to have had an impact on the crowd’s view on shares. Taking a look at the most recent key metric data from Roblox, it’s easy to come to the same conclusion.
Most Recent Data Supports This ‘Stay Stuck’ Thesis
As you may know, the company each month provides the investing public with an update on key metrics. This includes data like its latest number of Daily Active Users (DAUs). It also includes financial figures like estimated bookings and estimated revenue. Analysts and investors use this data to fine tune their assessment of RBLX stock.
For February, the company reported DAUs of 55.1 million, up 28% year-over-year. Estimated revenue for the month (between $204 million and $207 million) was up by an even higher amount year-over-year (60%-63%). But compare that to its estimated revenue for January (between $203 million and $206 million), and this figure appears far less impressive.
Not only that, estimated bookings for the month (also between $203 million and $206 million) were also less-than-impressive. Revenue growth is very likely to continue slowing down throughout 2022. Based on these revenue and bookings numbers, it seems like Roblox will generate around $205 million per month this year. On an annualized basis, that’s around $2.46 billion in revenue.
However, the average sell-side estimate for annual revenue this year comes in at around $3.06 billion. The MKM analysts referenced above appear correct in their view Wall Street will need to revise its estimates downward. A revenue figure of around $2.46 billion also implies revenue growth this year of just 28.13%. That’s a severe deceleration from the triple-digit revenue growth reported for the preceding year.
With Roblox Stock, Time is On Your Side
In my past article on Roblox, I argued that decelerating growth could cause it to see further multiple compression. Yet reassessing my view, I can see how downside from here in the short-term may be limited.
Although the company does appear to be experiencing growing pains, the market know it has many avenues to re-accelerate growth. If it gets back into high growth mode, they’ll resume cutting it some slack when it comes to its profitability timeline. In turn, enabling it to make a serious recovery in the coming years.
Still, with the good chance that the latest take on it could prove to be on the money, time is on your side with RBLX stock. More likely than not, it’ll remain either at today’s prices, or move lower, in the months ahead.
On the date of publication, Thomas Niel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.