Roblox Stock Price Down 13.5% in June – Time to Buy Roblox Stock?

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Roblox stock has delivered handsome returns since it went public earlier this year. However, it is down from the peaks and has lost 13.5% in June. Is now a good time to buy Roblox stock?

Roblox (RBLX) was initially slated to go public last year through a traditional IPO route. However, the company delayed the listing to 2021 as the bumper listings of Airbnb and DoorDash showed that investment bankers were leaving too much on the table for IPO investors at the cost of existing shareholders.

Roblox finally chose to go public through a direct listing with a reference price of $45. The stock gained over 50% on the first trading day and made an intraday high of $74.83 on the listing day. It went on to hit an all-time high of $103.87 while its 52-week low of $60.50 was hit on the first trading day only.

Why has Roblox stock fallen in June?

Roblox stock is down almost 22% from its 52-week highs and is in a bear market territory having fallen over 20% from the peaks. The company faced controversy after it was targeted for copyright infringement by some music publishers. RBLX ridiculed the allegations and said, “We are surprised and disappointed by this lawsuit which represents a fundamental misunderstanding of how the Roblox platform operates, and will defend Roblox vigorously as we work to achieve a fair resolution.”

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RBLX reported May operating metrics

The company’s May operating metrics also dampened sentiments. The company reported daily active users (DAU) of 43 million in the month which was 1% lower than what it had reported in April. While the metric was 28% higher than April 2020, investors saw the month-over-month decline as a sign of slowing growth.

Roblox is particularly popular among younger Americans and the demand for its services rose sharply last year. However, as consumer habits revert to more normalized pre-pandemic levels, the demand growth for some of the so-called “stay-at-home” companies is coming down this year.

Meanwhile, Roblox also said that it expects its average booking per DAU to fall between 2-3% in May. However, it said that May revenues are expected to be between $149-$151 million—a year-over-year rise of 125% at the midpoint.

What do analysts think about Roblox stock?

Wall Street analysts are generally positive on RBLX stock. Its median target price of $88 is an 8.5% premium over current prices. The stock even trades 1% above its lowest target price while the highest target price of $103 is a 27% premium over current prices. Of the eight analysts covering Roblox stock, six have a buy rating while two rate them as a hold or some equivalent. None of the analysts have a sell rating on RBLX.

Truist raised RBLX’s target price

Earlier this month, Truist Securities raised Roblox’s target price to a street high of $103 and said that the company’s bookings in the second quarter “look to be tracking at least mid-single-digit-percent above consensus (upwards of low-double-digit-percent).” The brokerage expects RBLX to easily beat 2021 consensus estimates. Looking at the consensus estimates, analysts expect Roblox to report revenues of $2.65 billion in 2021—40% higher than what it reported last year. The company’s revenues are expected to grow by almost 20% in 2022 also. Analysts expect Roblox to post an adjusted EBITDA of $609 million in 2021 which is expected to rise to $656 million in 2022.

Growth drivers for Roblox

Truist also said that “Beyond numbers, the focus is likely to remain China, new features/platforms and new branded experiences.” There are several growth drivers for Roblox including international expansion. The company also plans to target older demographics. Currently, the platform is mainly used by the younger population and roughly two-thirds of US kids between the age of 9-12 use the Roblox platform. Gaming is getting popular globally and is also moving online which would help buoy the numbers for RBLX also.

RBLX stock technical analysis

Roblox stock is nearing a key technical level. The stock is marginally above the 50-day SMA (simple moving average) of $81.14. The 50-day SMA has been a strong support channel for RBLX stock. If the stock breaks below the 50-day SMA, it could lead to more selling pressure. RBLX has a 14-day RSI (relative strength index) of 43.9 which is getting near oversold territory.

Roblox stock valuation

Meanwhile, looking at the valuations, Roblox stock trades at an NTM (next-12 months) EV (enterprise value)-to-revenue multiple of 16.4x. The multiples have averaged 18x since the company went public earlier this year. The valuation multiples peaked at 21.1x while it bottomed at 14.2x. RBLX stock has traded at a discount to Unity Software. The gap has only narrowed in June after the underperformance of RBLX stock.

Roblox is a good long-term stock and the current sell-off could be an opportunity to buy the stock. The future of gaming is online and RBLX is well placed to capitalize on the opportunity. The company has a strong business model and looks attractive after having fallen sharply from the peaks.

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About Mohit PRO INVESTOR

Mohit Oberoi is a freelance finance writer based in India. He has completed his MBA in finance as a major. He has over 15 years of experience in financial markets. He has been writing extensively on global markets for the last eight years and has written over 7,500 articles. He covers metals, electric vehicles, asset managers, tech stocks, and other macroeconomic news. He also loves writing on personal finance and topics related to valuation.