Stock Analysis & Ideas

Roblox Stock (NYSE:RBLX): Investors Could Win This Game

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Roblox isn’t in perfect financial health, especially in the areas of profitability and cash flow. However, if you’re willing to overlook a few fiscal flaws and envision a leveled-up future for Roblox’s platform, then RBLX stock could be a worthy watch-list contender.

Roblox (NYSE:RBLX) has its fair share of challenges in 2023, but investors can win the game simply by holding on for the long run. Granted, Roblox won’t necessarily check all of the boxes for fundamentals-focused folks. Still, I’m bullish on RBLX stock because the company is proactively preparing for the future.

Roblox is known as a provider of a video game – or maybe I should call it an “immersive experience” that typically appeals to children and teenagers. The company fared well in 2020 as young people stayed indoors during COVID-19 lockdowns and spent plenty of hours on the Roblox platform.

Nowadays, however, the initial pandemic catalyst has faded, and Roblox’s audience might outgrow the games they were addicted to several years ago. Fortunately, though, it appears that Roblox managed to outpace Wall Street’s expectations in late 2022. Besides, the company could successfully transition into a metaverse platform provider that appeals to adults as much as kids.

Roblox’s Financials Aren’t Ideal, but There are Bright Spots

To be fair and balanced, investors should acknowledge that Roblox doesn’t have perfect financial stats. If you’re looking for a company that’s currently profitable and free-cash-flow-positive, Roblox doesn’t fit the bill. On the other hand, some of Roblox’s fiscal figures are encouraging, or at least not terrible.

As you might expect, Roblox put the good news in large print at the top of the company’s fourth-quarter 2022 press release; for the not-so-good news, you’ll have to scroll down and might need a magnifying glass. So, I’ll make things easier for you: in Q4 2022, Roblox’s revenue increased 2% year-over-year, which is nothing to write home about.

Turning to the bottom line (and the fine print), Roblox’s net loss attributable to common stockholders ballooned from $143.3 million in the year-earlier quarter to $289.93 million in 2022’s fourth quarter. During that same time frame, Roblox’s free cash flow turned negative, from $77.28 million to -$37.99 million.

If it’s any consolation, Roblox’s Q4-2022 per-share loss of $0.48 beat the consensus estimate of a per-share loss of $0.51. That’s the company’s first quarterly EPS beat, going back to mid-2021.

Finally, we should take a look at a moneymaking measure that some people might consider to be more important than revenue for Roblox — bookings. During 2022’s fourth quarter, Roblox generated bookings of $899.4 million, up 17% year-over-year and higher than the analyst consensus estimate of $871.2 million.

It’s hard to know what to do with this mixed bag of results. If Roblox’s widening net loss and negative free cash flow are deal-breakers for you, I fully understand. If you’re still undecided, though, then consider Roblox’s bookings improvement as a sign that the company may be able to recover from its post-pandemic-catalyst slump.

Roblox Shows That Its Platform Isn’t Just Child’s Play

Even while Roblox’s quarterly bookings beat the Street’s estimate, the company’s critics may be concerned that children and teenagers will outgrow the Roblox game. To address this concern, CEO Dave Baszucki assured that Roblox is expanding its platform “to encompass people of all ages.”

Without saying it directly, Baszucki made it crystal-clear that he wants to expand Roblox beyond its kids-focused gaming experience. In time, Roblox could morph into a full-fledged metaverse platform for all ages and not just for gamers. Thus, Baszucki hinted at Roblox’s future “expansion into education, into concerts, into communication.”

It’s almost as if the chief executive read the minds of Roblox’s critics and spoke to them directly. Baszucki referred to “older users” as an enormous opportunity for the platform,” and assured that Roblox is “in the middle of aging up.” To support this assertion, the CEO observed that “in January, we saw our 17- through 24 -year-old segment grew at 39% year on year for bookings.”

What will the Roblox platform look like in five or 10 years? Baszucki provided a few clues when he referred to “dynamic heads,” “facial animation,” and “layered clothing.” In other words, Roblox definitely won’t be just child’s play as the company levels up its metaverse-tech game.

Is RBLX Stock a Buy, According to Analysts?

Turning to Wall Street, RBLX stock is a Hold based on eight Buys, six Holds, and four Sell ratings. The average Roblox stock price target is $42.44, implying 8.2% upside potential.

Conclusion: Should You Consider Roblox Stock?

Some traders won’t be willing to overlook Roblox’s financial shortcomings, and that’s fine. RBLX stock isn’t right for everyone, but it might appeal to some gaming gurus and metaverse mavens.

Ultimately, it’s a question of whether you’re on board with Baszucki’s vision for a platform that’s likely to become more sophisticated — more “grown-up,” if you will — in the coming years. If so, then you can definitely consider a moderately-sized, multi-year holding in Roblox stock.


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