Saturday, December 2, 2023

Roblox rallies more than 10% as holiday numbers top Street, but one analyst warns on less transparency

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Roblox Corp. shares surged Tuesday after the youth-centric virtual-world platform forecast that holiday bookings had swelled above most expectations on Wall Street, but one analyst warned that parents might start throttling the money tap should macroeconomic conditions worsen.

Heading into the report, Stifel analyst Drew Crum, who has a buy rating on the stock, said the importance of the release was “notable,” given that “1) December has historically been Roblox’s

largest month of the year in terms of bookings; 2) a strong December is necessary in order to meet expectations, and reverse sentiment following what was deemed a disappointing set of [key performance indicators] for November; and 3) Roblox typically exhibits volatility the day of a KPI report, and hence any variability relative to market expectations could lead to a swing in share price.”

Roblox shares surged as much as 15% to an intraday high of $38.30, and were last up 12%, after the company estimated December bookings of $430 million to $439 million, above the Street consensus of about $400 million.

Cowen analyst Doug Creutz, who has an underperform rating and a $27 price target, said the sequential month-to-month bookings increase of 94%, in-line with company forecasts, was “significantly better than our expectations for a +78 (seasonally-driven) increase.”

“Today’s report is certainly a strong one for Roblox; however, January KPIs (which we expect to be reported along with fourth quarter earnings) will be an important indicator of whether the December strength was just temporary or whether it provided a new, higher baseline for growth,” Creutz said.

Benchmark analyst Mike Hickey, who has a sell rating and a $21 price target, said that while bookings topped the consensus, it fell short of his own. More importantly, however, Hickey said Roblox’s plan to discontinue its reporting of monthly metrics after its March numbers was a “negative development.”

In its release, Roblox said that by April, the company “will have published monthly metrics over our first eight quarters as a public company. “

“While we think that has provided incremental information to investors regarding the seasonality of the business, we have decided to cease providing monthly metrics to align our reporting cadence with our value of taking the long view,” Roblox said in a statement, adding it will still report metrics on a quarterly basis.

Hickey thinks that Roblox is vulnerable to negative macroeconomic trends like inflation, unemployment, and wealth reduction — which have hit the mobile games sectors— could extend to Roblox.

“We believe most children do not personally pay for their game experiences on Roblox and are therefore more easily open to switching games, and because parents are not directly investing in the service, are less emotionally connected and can easily throttle back spend during periods of rising inflation,” Hickey said.

Of the 29 analysts surveyed by FactSet who cover Roblox, 11 have buy-grade ratings, 11 have holds, and seven have sell ratings, along with an average price target of $33.85.

Roblox shares are down 53% over the past 12 months, compared with a 14% decline in the S&P 500 index 

 and a 26% drop in the tech-heavy Nasdaq Composite Index 

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