Roblox (NYSE: RBLX) shot onto the scene back in March 2021. Officially public trading for just over 1 year, price action is starting to look pretty clear. RBLX shares are now down more than 50% from the company’s IPO price, and in all honesty, aren’t showing any clear signs of reversing any time soon. Looking at earnings, there are a few key metrics that effectively summarize Roblox’s positioning. It's not about revenue growth, where the company pegs consistent growth, but bookings growth; which appears to be decelerating at an alarming rate.
Unless it reports accelerated growth some time soon, Roblox continues running the risk of underperforming. Although faith in the metaverse remains strong amongst tech and emerging market investors, Roblox simply can’t illustrate the positive trends needed to demonstrate substantial growth to on-the-fence investors. Anyone investors long on Roblox should be willing to endure continued downside risk, but there is arguably still a play to be made – if you have the patience.
There are numerous worries surrounding Roblox, including the number of young gamers that started to dwindle after the pandemic, and fears that the digital haven could become a playground for sexual misconduct, abusive language and generally offensive behaviour. This is a hurdle that the company will have to deal with if they wish to continue pushing the unbridled reigns of social freedom whilst maintaining security for younger gamers.
Finally, Roblox has earnt itself the tag of a prominent metaverse play, but there is competition emerging that has the chance of dwarfing Roblox’s basic graphics and offers much more realistic, in-depth metaverse creations. Roblox is still well-positioned for the metaverse evolution, but investors should be aware that the company might continue underperforming for some time. Morgan Stanley cut its price target on the company to $32 from $65, with analyst Brain Nowak citing continued negative revisions in the future.
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Oliver is a financial writer and analyst specialising in the US stock market, with years of personal experience in understanding micro/macroeconomic structures, market trends and fundamental analysis.