RBLX Stock Forecast: Roblox trades higher despite poor market performance

RBLX Stock Forecast: Roblox trades higher despite poor market performance

May 27th, RBLX Stock Forecast: The overall recommendation is to Sell In the next few hours, the RBLX is expected to trade between $25 and $32. 3 out of the 4 momentum indicators are Negative.


RBLX Stock Forecast: RBLX Stock Chart

Share Volume19.6 M
Forward P/E (1 Year) -26.79

RBLX Stock: Momentum Summary

PriceHigher
Share VolumeLower
Technical IndicatorSell
Social Media SentimentNegative

RBLX Stock Forecast: Support and Resistance

AnalystSupportResistanceRecommendation
Investing.com$30.16 (S3)$30.76 (R1)Buy
Barchart$25.78 (S3)$31.65 (R1) Sell

RBLX Stock forecast: CrowdWisdom360 Insights

US FED increased rates by 50 points to curb inflation. Most of the stocks have been underperforming the market ever since then. The short-term recommendation is to sell this stock. Roblox stock’s performance this month is not up to par. Investors are concerned especially after an analyst from Atlantic Equities downgraded the stock from overweight to neutral with a $30 price target. The stock has a YTD of -69%. Over the last five days, the stock has seen a drop of about 11%.

RBLX Stock forecast: Social Media Sentiment

Date1 Day7 DaysSentiment
27th May-6%-11%Negative

RBLX Stock Forecast: Bull Case

  • Diverse Business Model- There are two divisions of Roblox Corporation’s business model. On one hand, Roblox creates a two-way relationship between gamers and developers. While developers get a platform to develop games and showcase their skills and gamers reward them by spending money on these virtual games. Then developers use this money to improve the quality of the game, which helps to develop a strong fan base of gamers and users. It ensures that the quality of services is upgraded timely and it gets rewarded by ever-growing users. On other hand is the social element of the Roblox platform. It provides the platform for an artist to launch a song or video and a team can also use the Roblox platform for official meetings. As a result, a user joining Roblox invites friends to do the same and it helps to create a chain.  
  • Metaverse Holds Potential –The world is moving towards the metaverse with every passing year. The expected market size of the metaverse was $470 billion in 2020 and this could grow to $780 billion in 2024 according to GDA Capital. Roblox Corporation has 47 million daily users on its platform. While current revenue from advertising, licensing, and royalty are minuscule, it could change in the era of the metaverse for Roblox. Brands are spending money to create experiences on such platforms. For example, Nike has created NIKE LAND. A huge user base enables Roblox to compete with Roku Channel, an advertising-based platform in the US.  
  • Excellent Cash Flows – Although, Roblox spends huge sums of money on R&D, Infrastructure and servers, still the company can be profitable going forward. The main reason is the huge free cash flows (FCF) of the company. The company generated $599 million in free cash flow on revenue of $1.66 billion in the last 12 months. It turns out to be $0.36 of FCF for every dollar of revenue generated. This is commendable especially considering a company in growth mode. It indicates that it has cash available after investing in the development of the business. Currently, the net income is negative because Roblox is focusing on future growth and this could change upside down with increasing revenue and FCF with an increased user base.
  • Recent Dip in Stock Valuations – Roblox came with an initial public offering in March 2021, with an initial price of $69.70, and by fag end of November 2021, it touched a high of $141 and at that point of time, it was trading at a price to sales ratio of almost 21. But since then it has been a forgettable downward journey for the stock and the share price has corrected more than 60% to trade at $46.95 as of 2.3.2022, 10:32 am GMT. So, the valuations have greatly cooled off and analysts are projecting 21% growth in revenue for 2022, which comes out to be $3.3 billion, creating a not-so-expensive forward price-to-sales ratio of just below 10. 

Also Read: Ford Stock Forecast

RBLX Stock Forecast: Bear Case

  • Number of Users Slowing Down –Covid pandemic acted as a boon for RBLX stock. People switched to online gaming profoundly and as a result, the user base grew from 40% to 50% for Roblox in 2019. It accelerated to 97% at its peak in 2020. But it has started to cool off since then in 2021, with user growth being 79% in the first quarter, followed by 29% and 31% in the following two-quarters year over year. User growth is most important for Roblox as its revenue model is deeply dependent on it, because developers take their reward from a growing user base. If the user base further falls in the coming quarters, it will be a troubling sign for investors.

  • Widening Losses in Balance Sheet –As the number of users is decreasing and monetizing rates decelerating, losses continue to widen in each reporting. Its net loss increased from $70 million in 2019 to about $250 million in 2020 and then surprisingly to $453 million in 2021. These losses are attributed to various factors like Roblox’s developer exchange fees (to convert Robux back to world currencies), infrastructure costs, and safety-related expenditures for minors. Also, it spends a huge sum of money on R&D to create new features and stock compensation expenses (nearly 18% of revenue as of 2021). It does not look like it can reduce any of these above-mentioned expenses going forward. Also, total liabilities have gone to touch $4 billion in 2021, making things worse for the company.  
  • The allegation against Children Safety – RBLX shares have fallen nearly 29% in the last month as of this writing. The major contributor to this fall is a short report from The Bear Cave. The report alleges the company for the sexual violence against children on the platform. The report claims pedophile activity on the platform with supporting images. However, a spokesperson from Roblox thrashed the report, labeling it to be completely false and misleading. These issues do dent the image of the company in front of investors for at least a short period of time if not forever. It will be interesting to see how Roblox deals with these issues in future quarter results conference calls.

RBLX Stock Forecast: Conclusion

ROBLOX is best to avoid investment at this juncture of time. There are multiple reasons for the same. However, decreasing user base and monetization and safety issues are at the top. Roblox as a concept is in the right direction, but it has failed to generate net income in the last 17 years and that is something not digestible. Moreover, with increasing interest rates and the pandemic is over it seems that the darling time of Roblox is also over.

If someone believes in the idea of online gaming and Roblox Corporation, he/she can consider investing, but it looks like the current global scenario will provide a better entry point.

RBLX stock forecast

-Vineet Agarwal

Note: Crowdwisdom360 collates Predictions and data from all over the net and has no in-house view on the likely trends in the Stocks or Crypto Coins. Please consult a registered investment advisor to guide you on your financial decisions.

Subhash

Subhash

Subhash, Founder of Crowdwisdom360 is an MBA and a Trained Financial Advisor with an extensive background in Forecasting in Financial Services and Politics. He has appeared many times on National TV and has written for a variety of magazines on Wealth Management and Election Strategy.