Roblox stock drops as Wall Street sees a ‘Pandora’s box of problems’

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Roblox Corp. U.S. stock sold on Friday as analysts questioned the growth initiatives the social-media company presented at Investor Day on Thursday and August’s performance that fell short of expectations.

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The stock fell 11% to an intraday low of $38.81 and fell 9.2% to $39.50 in Friday’s trade. The stock also declined on Thursday after the company held its investor day and released its August figures, and shares are down 13.2% for the week.

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Wedbush analyst Nick McKay, who has a neutral rating and a price target of $34, was somewhat skeptical about some of the new features the company introduced, saying “we think many of its strategies are a key to continued growth at a higher rate.” could prove to be a challenge.

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For example, Roblox executives announced Thursday that they’re adding new avatar customization, the ability to destroy in-game objects, and in-game voice chat, a non-browser PC format, and support for users over the age of 13. Will start offering immersive ads for

“In particular, we suspect that Roblox’s game engine is sufficiently robust to enable older and wealthy users to be retained,” McKay said. “In our opinion, the graphics of the Roblox platform are in some situations comparable to those seen on consoles a decade or more ago, and many of the initiatives presented at its analyst day appear to be already proven concepts from other platforms. Huh.”

Roblox was acquired by Unity Software Inc. for its game engine. Companies like U also face challenges.
McKay said.

McKay said, “Game engines like Unity are more robust than Roblox’s engine, and are equally democratized, suggesting that a company like Unity may underpin Roblox’s business model and have a settlement of receipts with developers.” Could share a bigger share,” McKay said. “Given that an estimated 70% of all games are currently developed using Unity, this sounds like a potential problem for Roblox.”

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Jefferies analyst Andrew Urkwitz said the August booking outlook was in line with his forecast, but he was concerned about the company’s plans for an immersive advertising platform.

“Immersive portal advertising can, in our view, open up new creative ways to monetize and engage with users’ experiences,” Urkwitz said. “If done properly, it is possible for an advertising business to be as big as the cost of the experience.”

“However, we also see a box of Pandora problems that can arise with ads,” said Yurkwitz, who has a hold rating and a $43 price target. “As such, we expect Roblox to roll out the product gradually and we do not see a material contribution to 2022 or 2023.”

Stifel analyst Drew Krum wrote that August’s $233 million to $237 million of bookings were in line with seasonality, about $6 million lower than their estimate “and disappointed the market with shares trading after the disclosure of this metric.” appeared.”

Changes in bookings, or revenue plus deferred revenue, are especially important because Roblox recently reported a surprising drop in bookings, their second consecutive year-over-quarter decline. Back in May, when Roblox reported an unexpected drop in bookings, the stock posted its worst one-day performance since going public.

Krum, who has a buy rating on the stock and a $50 price target, said Roblox’s push to target older users — including attracting new users — is aimed at retaining players who have used Roblox. began when they were tweens – core to their buying thesis. Roblox said it had increased 17- to 24-year-old users by 40% in August.

This group is “projected to become Roblox’s largest group in the near future,” Crum said. “We see this as important because older kids/adults tend to monetize better than younger kids.”

How Roblox works: 5 things to know about the tween-focused gaming platform

JPMorgan analyst David Karnowski, who has a rating overweight and a price target of $53, also said that both August bookings and daily active users of 59.9 million fell short of his expectations. While the company did not provide any new forecasts, Karnovsky said that Roblox “commented broadly on margins, stating that with bookings growth, profitability could potentially return to pre-COVID levels”. Is.”

Meanwhile, Roblox is making ambitious growth plans, and that means margin pressure, wrote Jefferies ‘Uerkwitz’.

“The company is focused on growing the business 10 times,” Urkwitz said. “This is likely to keep margins low in the short and long term.”

Of the 23 analysts who cover Roblox, 12 have a buy-grade rating, eight have a hold rating, and three have a sales-grade rating, with an average target price of $45.06, down from a recent $45.44. According to FactSet data, back in June 2021, all eight analysts covering Roblox had buy-grade ratings, which it enjoyed for six quarters.

Shares of Roblox are down 61.7% for the year, compared to an 18.7% drop in the S&P 500 index SPX,
and the tech-heavy Nasdaq Composite Index comp fell 26.8%,

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