Rebounding bookings really is just child’s play
Roblox (NYSE: RBLX) recently provided its investors with a ray of hope, as the company provided an update with an upbeat stat or two. However, the outlook is murky if Roblox cannot capture the attention and money of adult consumers. Therefore, I am neutral on Roblox stock.
Roblox is a video game company, and its game is intentionally filled with blocky graphics. Beyond its gameplay function, the Roblox platform is a portal to the metaverse. There, as you’d expect, Roblox (the company) earns revenue from facilitating the sale of virtual items.
Is it a lucrative business model? That’s the billion-dollar question, and a recently released data set suggests that Roblox is increasing its sales of digital goods. On the other hand, some financial experts are skeptical that Roblox can successfully woo older users while navigating a post-pandemic world.
Roblox has demonstrated growth by this crucial metric
Roblox does not expect to release its third quarter 2022 financial results until November 9. However, it has already released a significant set of operating results for September. Among the data points were several positive ones, including an indicator of Roblox’s ability to sell virtual goods. Indeed, it’s not hard to see why Roblox stock jumped 20% on October 17. The company revealed that its estimated bookings for September rose 11% to 15% year over year to between $212 million and $219 million.
The press release did not define reservations, but Barrons explains this metric as “equivalent to the amount of virtual currency purchased during a given period”. Additionally, users of the Roblox platform use a virtual currency called Robux to purchase items.
Selling these items is the bread and butter of Roblox, so it’s certainly encouraging that the company’s monthly bookings have increased. Also in September, Roblox’s daily active users (DAUs) grew 23% year-on-year to 57.8 million, while hours engaged on the company’s platform increased 16% year-on-year to reach 4 billion.
Were financial traders too enthusiastic about driving RBLX shares up 20% in a single day? It is possible that their haste will be punished as the future of Roblox may hinge on an overly young and unreliable user base.
Two analysts have issued warnings about Roblox Stock
It’s been a tough year for RBLX shareholders, even after the aforementioned 20% share price increase. Additionally, there could be a lot more pain in store, as two analysts raise concerns about Roblox’s young user population.
Key analyst Mike Hickey, for example, suggested that the COVID-19 pandemic drove the company’s growth forward for a while; in other words, confined people have been spending a lot of time playing video games in 2020. However, Hickey is seeing a normalization in behavior lately, which could dampen the growth in user engagement catalyzed by the Roblox pandemic.
It’s a fancy way of saying that Roblox can’t continue to rely on COVID-19 to keep people inside and playing. Roblox for hours. That’s not the only concern, however. Hickey also observed that many users of the platform are children and that children are more open to changing games because they do not pay for gaming experiences themselves.
Parents are usually the ones who give kids money to spend on Roblox gaming, and those parents have little to no emotional connection to the game. So they won’t feel bad about cutting back on spending in this time of high inflation.
Additionally, Hickey warns that the Roblox game is primarily aimed at young children, who cannot be relied upon as consumers, as they will age out of the game when they are teenagers. With all of these factors in mind, Hickey issued a very bearish price target of $21 and a sell rating on RBLX stock.
Along the same lines, research analyst Cowen Sr. Doug Creutz explained that spending Roblox The platform is “still very heavily influenced by kids aged, say, 8-12”, and that it is “still largely a youth-focused experience”. Creutz also hinted that kids aren’t necessarily big spenders on Roblox, saying, “I don’t know if the kids are really excited about going to a virtual Chipotle or a virtual Walmart. I think they prefer to play games.
What is Roblox Action Prediction?
As for Wall Street, Roblox stock has a Moderate Buy consensus rating based on eight buys, six holds, and three sells assigned over the past three months. The average Roblox stock price forecast is $43.20, implying a downside potential of 2.51%.
Conclusion: Should You Consider Roblox Stock?
RBLX shareholders are in a tough spot here. They’ve been in a losing position year-to-date, but September’s data release from Roblox looks very encouraging. The full story is not limited to the raw data, however. Frankly, young children probably can’t be counted on to stay on the Roblox long-term platform, or spend a lot of money on it. Therefore, since these age dynamics might not work in Roblox’s favor, it’s wise to avoid RBLX stock for the time being.