Roblox Stock Down At 6 Month Lows On Mixed Earnings – ARK Invest Adds

Roblox Corporation share price (NYSE:RBLX) took a tumble yesterday, losing a shade over 22% on the day, as a real mixed bag of earnings set markets aback.

As one of the global leaders of online gaming and interactive experiences, the goings on at Roblox I feel has a little more attention than some others, and whilst the report was not all bad, the outlook has caused a few shockwaves.

Despite reporting what appears at first very impressive revenue growth, a 22% increase to $801.3 million, up from last year’s figure of $655.3 million the outlook for Q2 was not on track. Whilst markets were looking for a Q2 bookings outlook of $934m (FY 2024 $4.1-$4.28bn), the company guided to a range between $870m-$900m ($4-$4.1bn). That surprise to the downside was not all however, as despite the revenue upswing, Roblox Corp also had a rather substantial net loss of $271.9 million, primarily due to escalating operational costs.

In comments from the CFO, the firm defended performance with the view that

“We are operating more efficiently. Over the past three quarters we have reduced certain infrastructure and trust and safety expenditures, and we have reduced the growth rate of personnel costs (excluding stock-based compensation expense) by holding headcount flat. Capital expenditures are down nearly 50% in Q1 2024 compared to last year. As a result, this past quarter we produced record amounts of operating and free cash flow,”

Michael Guthrie, Roblox CFO

Roblox Followers Continue Support

Ark Invest Maintains Position, Buys More RBLX – In the aftermath of the stock price dipping to 6 month lows, some holders would be a little unnerved, but this seems to be the place where Cathie Wood and ARK invest grow emboldened. Buying on a dip, or trying to get a discount on the stock is a good move for believers in the companies fundamentals and growth story. This seems to be the case at ARK invest, with the firm stepping in and buying a further 1.72million shares of RBLX yesterday.

RBLX is firmly in the top 10 of holdings by weight of ARKK, and the sentiment towards the firm shows no sign of cooling off, despite some market followers trying to sound the death knell.

Analyst Cuts Target Price But Holds Rating Firm – Canaccord dropped their price target to $48 from $56, but maintains their ‘Buy' rating. They indicated the cut was in part due to Q2 bookings guidance “well below” consensus, along with the “mixed” Q1 results. With FY guidance dropping by around 4%, the firm remains bullish as the “reset of expectations has created a more favorable setup for the stock moving forward,”.

Whether more adjustments will come in over the coming days as markets and analysts digest the new outlook is yet to be seen, but for the time being, consensus of $49.72 reflects a potential upside of more than 63%. After what has been a rather slow burn for the stock this year, losing around 5% before yesterday's more dramatic move, it trades far closer to the 52 week low than the high. So what is propping up sentiment in the firm?

A key strength of Roblox lies in its uniquely engaged user base, which continues to expand. The company's ability to retain consumer interest is reflected in the year-over-year increase of daily unique paying users from roughly 812,000 to 914,000.

This loyal community is not by coincidence but a result of Roblox Corp's sophisticated monetization model, which has been bolstered by a robust developer exchange program. This initiative not only incentivizes content creators but also fosters a thriving ecosystem where developers can monetize their creative works.

Fuelling innovation and keeping content fresh on the platform, Roblox Corp continues to develop its proprietary technology, the Roblox Studio. This powerful tool empowers users to transition from mere players to innovative creators. In line with this, the company has underscored its commitment to innovation by investing a striking $362.1 million in research and development. These investments are aimed at enhancing the platform’s features and the overall user experience.

Despite these impressive strengths, Roblox Corp is not without its vulnerabilities. A considerable portion of the company's revenue is derived from Robux sales through external third-party app stores, which exposes it to potential risks associated with changing policies on these platforms. Moreover, Roblox Corp's ambitions for global expansion, scaling its advertising business, and upgrading its platform to better attract and retain users represent strategic opportunities that the company is looking to capitalize on in the near future.

The company's path forward is replete with the potential for international expansion and platform enhancements but is fraught with the hard-to-predict winds of market forces and regulatory shifts.