Roblox Stock Down 62% in 2022 – Time to Buy RBLX Stock?

There has been a terrible sell-off in growth stocks in 2022 and Roblox is no exception. The stock hit a new 52-week low on Friday and is now down 62% in the year.

RBLX stock is now sown 72% from its peak and its market cap has fallen to $23 billion. What’s the forecast for Roblox stock and should you buy the dip in the company?

Roblox went public in 2021

Roblox went public in 2021 through a direct listing. It was previously looking to list through a traditional IPO in 2020. However, it delayed the listing to 2021 in an apparent bid to increase the pricing. Affirm also delayed the IPO and went public in January. The bet paid off well and the stocks performed well despite the bumped-up IPO pricing.

While RBLX stock continued to do well after the listing, the market sentiments towards growth stocks have changed. Most of the growth companies that went public over the last 18 months now trade below the IPO price. Apart from Roblox, Robinhood, Clover Health, Beachbody, and 23andMe are among the companies that have tumbled.

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RBLX stock recent developments

Roblox reported its fourth-quarter earnings last month. It generated revenues of $567 million which was slightly below what analysts were expecting. To make things worse, its per-share loss of 25 cents was almost double the 13 cents that analysts were expecting. The company generated operating cash flows of $122.2 million in the quarter while its free cash flows were $77.3 million.

It reported an average DAU (daily active users) of 49.5 million which was 33% higher than the corresponding period in 2020. It had reported an average DAU of 47.2 million in the third quarter of 2021. The company reported average hours of 10.8 billion in the quarter, a YoY increase of 28%. Its average booking per DAU was $15.57 in the quarter which was higher than the $13.49 in the third quarter.

Roblox stock tumbled after earnings

Commenting on the earnings, David Baszucki, Roblox CEO said “With nearly 55 million daily active users, Roblox is increasingly an integral part of people’s lives.” He added, “As we look ahead to 2022, we will continue to develop our technology to enable deeper forms of communication, immersion and expression on our platform.”

Meanwhile, markets were not impressed after the earnings and the stock crashed after the release.

RBLX stock forecast

Wall Street analysts are bullish on RBLX. Of the 17 analysts covering Roblox stock, 13 rate it as a buy while three have a hold rating. One analyst has a sell rating on RBLX stock. Its median target price of $71 is a premium of 81% over yesterday’s closing prices. The stock’s street-high target price of $108 is a 175% premium. While analysts have been lowering their target price on RBLX, most remain bullish on the company.

Last week, Deutsche Bank analyst Benjamin Black initiated coverage on RBLX stock with a buy rating and $60 target price. Black is bullish on the company as it has nearly doubled its developer community over the last two years. He sees RBLX as an “early market leader” in the online gaming platform space.

Black added, “We therefore contend that the dramatic negative re-rating presents longer-term investors with a very attractive opportunity to add an early market leader in a very large [Total Addressable Market], characterized by strong network effects.”

Roblox stock long term forecast

The long-term forecast for RBLX stock looks positive as gaming penetration grows globally. Also, the company is targeting older demographics which would be a key long-term driver. Gaming is gradually moving online which bodes well for platforms like Roblox.

Speaking with CNBC, Baszucki said, “We have so many opportunities to increase monetization on our platform.” He added, “We’re not touching advertising, we’re not touching 3D immersive shopping. We’re being very gentle on monetization relative to quality user growth, creating a safe and civil platform and driving our DAU numbers. So we are focused on user and engagement growth.”

Deutsche Bank also sees international expansion as a key driver for the company. It said in its note “We calculate that if international penetration trends mimic the US’s current level over the next 4 years, Roblox would still have sufficient runway to more than double total DAUs by FY25 from aging-up alone.”

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Should you buy RBLX stock?

RBLX stock has now fallen to its all-time low. The company is witnessing a slowdown in growth, like fellow stay-at-home winners like DocuSign, Teladoc Health, and Zoom Video Communications. That said, the outlook for gaming platforms like Roblox looks quite optimistic as gaming penetration continues to grow and more importantly it continues to move online.

While there were concerns over RBLX’s valuations, they have since come down drastically and it trades at an NTM (next-12 months) EV-to-sales multiple of 6.84x. The stock could remain under pressure in the near term as the Fed starts raising rates and the Russia-Ukraine war continues to take a toll on market sentiments.

However, after the steep fall, it might not be time to start accumulating RBLX stock for the long term. Given the broader market volatility, staggered buying might be a better idea.

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