Roblox Stock Down 6% in September – Time to Buy RBLX Stock?

Even though the price of Roblox stock initially advanced after the company reported its financial results covering the second quarter of 2021, the price action progressively posted a series of lower highs that highlighted a weakness in the positive momentum the stock was experiencing.

Back in mid-August when the firm reported its Q2 earnings report, Roblox saw its quarterly bookings increase to $665.5 million for a 35% year-on-year yet the figure was slightly lower than analysts’ forecasts of $683.3 million for the period as compiled by Refinitv IBES.

Meanwhile, revenues landed at $454.1 million resulting in a 127% jump compared to the same period a year ago but they missed analysts’ estimates by over $200 million as per data from Capital IQ.

Shares fell nearly 6% back then on the day that the report came out but progressively recovered in the days that followed to jump to a post-earnings closing high of $90 per share to then slide to the current level of $77 per share.

What does this choppy price action mean for Roblox stock and what could the future hold for this pure-play metaverse company? In the following article, I’ll attempt to outline plausible scenarios for the future upon assessing the latest price action and fundamentals for RBLX stock.

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Roblox Stock – Technical Analysis

The latest price action in Roblox stock is forming a consolidation pattern that consists of a series of lower highs and higher lows as market participants appear to be struggling to determine the fair value of RBLX stock.

Meanwhile, this latest three-day decline has pushed the stock to the lower bound of the triangle and this is a dangerous position as a break below could lead to a more pronounced downtrend for RBLX.

Trading volumes in the past few sessions have been relatively calm but the stock’s short-term moving averages have already been broken, which is a sign of short-term weakness as well.

Moreover, the Relative Strength Index (RSI) is standing at 39 (a bearish reading) while the MACD remains in negative territory while histogram readings have been negative 12 sessions already.

Moving forward, if the price breaks below this trend line support, the outlook for Roblox would be bearish with a potential short-term support found at the low 70s for a total downside risk of 8%. On the other hand, a bounce off this area may result in the continuation of the consolidation seen lately until the symmetrical triangle formation is broken.

Roblox Stock – Fundamental Analysis

Roblox is a strong player in the up-and-coming metaverse industry – a 3D world where users can interact, play, and connect in environments designed by the more than 7 million developers the firm has attracted to its platform.

Daily active users for the company have grown from 13.7 million back in the fourth quarter of 2018 to 43.2 million by the end of the second quarter of 2021 at a 12.2% compounded quarterly growth rate (CAGR).

Meanwhile, the company’s revenues have surged from $325 million back in 2018 to $924 million last year at a 68.6% CAGR while, in the past twelve months, Roblox has reported $1.4 billion in top-line results.

It is important to note that Roblox is still spending a significant amount of money to power its ecosystem as the firm pays developers for building the environments on which users interact while there are also infrastructure and trust and research and development expenditures that weigh heavily on the firm’s top-line profitability.

By the end of 2019, these three categories ate 79% of the firm’s top-line results. Meanwhile, during the nine months ended on 30 September 2020, they ate 94% of Roblox’s revenues.

Even though the company’s sales have grown significantly, the business model has not yet proven that it can deliver positive results to shareholders as these expenditures are not slowing down at all – in fact, they appear to be eating a larger chunk of the firm’s revenues even though business volumes have kept climbing

At its current market capitalization of $44 billion, Roblox is being valued at 16.3 times its forecasted sales for the 2021 fiscal year while analysts are expecting to see the firm’s top-line results surging by an average of 20% in the next two years.

This valuation seems quite stretched unless the company manages to improve its profit margins in the future. At the moment, it seems that market participants are too excited by the appeal of the metaverse while they are paying little attention to the feasibility of the company’s business model.

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