Shares of video-game platform developer Roblox (NASDAQ:RBLX) have been under pressure lately following the company’s latest mixed earnings results. More recently, Roblox stock found itself nearing an all-time low, thanks to a new short report issued by The Bear Cave yesterday. Currently, Roblox stock is a falling knife in a market that’s starting to look a bit wobbly. Despite the one-two punch of a rough quarter and a new short report, though, most Wall Street analysts continue to view the stock as a Moderate Buy.
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Personally, I’m inclined to stay bullish alongside the analyst community well but do acknowledge the bumpy road that lies ahead, given the highly-uncertain macro picture and the re-emergence of a notable bear.
Indeed, short reports can turn an otherwise bullish story on its head. However, such reports shouldn’t be taken as the truth. Roblox was quick to respond to The Bear Cave’s renewed short report, stating that it contained “misleading, irresponsible and in many cases false accusations.”
The Bear Cave Goes after Roblox Stock Again, Highlights Notable Risks
The bears over at The Bear Cave are back and at the worst possible time for Roblox stock. Roblox stock is fresh off a post-earnings plunge and now finds itself off around 80% from its November 2021 peak. As part of its short report, The Bear Cave cited numerous points to back up its bearish thesis, including unprofitability, heightened competition, regulatory scrutiny, and expenses regarding safety and compliance.
Undoubtedly, the report seemed to rattle many investors on a pretty downbeat day for the broader markets, with Roblox stock ending the day down 4.8%. Indeed, it can be tough to justify hanging onto shares of a company while there’s a short on its tail. Still, many bears tend to take aim after there’s already been a lot of pain in a name. Had Roblox reported better numbers for its second quarter, my guess is Roblox stock probably wouldn’t have shed nearly 5% in a day over a renewed short report.
At this juncture, it seems like all hope is lost for Roblox. Still, I don’t think there’s any “smoking gun” in the company’s renewed short report. Arguably, many of the negative points have likely already been known for quite some time.
Roblox: Another Unprofitable Quarter in the Books
Indeed, unprofitability is nothing new for Roblox followers. The company has continued to clock in negative earnings-per-share (EPS) numbers quarter after quarter. The latest second-quarter results, which saw EPS of -$0.46, worse than the -$0.44 estimate, were also not encouraging.
With the Federal Reserve open to further rate hikes, calls for a bigger push to profitability could grow louder once again. For Roblox, such a push could prove difficult over the medium term as it continues to invest in growth.
Undoubtedly, expenses related to safety could continue to push Roblox further away from sustained profitability. It’s hard to ignore the recent stream of negative headlines regarding scams and abuse incidents involving children. Many parents are growing increasingly aware of the risks.
Fortunately, Roblox appears to be taking safety seriously, as demonstrated by swelling investments to improve its safety track record. For the latest quarter, infrastructure & safety spending accounted for 28.8% of bookings, up from 22.4% in the same period last year.
Further, with notable bets on artificial intelligence (AI) technologies and tools, I wouldn’t at all be surprised if an AI-powered moderator helps the company enhance safety without driving up costs over time. If Roblox can improve its safety and compliance track, it may have an easier time responding to regulatory scrutiny as well.
Can AI be a cure for the company’s many woes? Possibly. However, don’t expect such bets to pay off overnight, as continued R&D is likely to weigh heavily on margins over the foreseeable future. Fortunately, such investments could make Roblox a much better company (and stock) at some point down the road.
Is RBLX Stock a Buy, According to Analysts?
On TipRanks, RBLX stock comes in as a Moderate Buy. Out of 18 analyst ratings, there are 12 Buys, two Holds, and four Sells. The average Roblox stock price target is $38.83, implying upside potential of 39.4%. Analyst price targets range from a low of $23.00 per share to a high of $54.00 per share.
The Bottom Line on RBLX Stock
Roblox stock is battered right now, but investors shouldn’t throw in the towel just yet. As long as the company keeps innovating, it has a chance to puts its growth and margins back on the right track eventually.
