Online games and entertainment platform Roblox (RBLX) has been accused of silently pushing advertisements on its platform in a way that it becomes hard to distinguish an ad from the original content. Shares were trading down 1.8% at the time of writing.
The allegations are based on an investigation made by advertising watchdog Truthinadvertising.org (TINA.org). The organization has filed a complaint with the Federal Trade Commission (FTC) requesting further investigation and appropriate enforcement action.
TINA.org found that Roblox fell short of maintaining proper checks to ensure compliance with truth in advertising laws on its platform. Sensing this shortfall, several brands have entered the platform and are manipulating users, especially children, by hiding advertisements and promotions behind games, making them difficult to separate from the original content.
The Executive Director of TINA.org, Bonnie Patten, said, “Deceptive advertising in the form of hidden advergames, undisclosed influencer marketing and unsubstantiated income claims has found a new home in the Roblox metaverse with potentially disastrous results for consumers, particularly children.”
Last week, Goldman Sachs analyst Eric Sheridan downgraded Roblox’s rating to Hold from Buy and also lowered the price target to $50 from $108. The new price target implies 45.6% upside potential from current levels.
The analyst is of the opinion that Roblox faces a “unique set of challenges,” such as slowing growth, tough comparisons and normalization of margins, in the near term.
The Wall Street community is cautiously optimistic about the stock and has a Moderate Buy consensus rating based on nine Buys, four Holds and one Sell. Roblox’s average price forecast of $64.50 implies that the stock has 87.8% upside potential from current levels.
TipRanks’ Website Traffic Tool, which uses data from SEMrush Holdings (SEMR), the world’s biggest website usage monitoring service, offers insight into Roblox’s performance this quarter.
According to the tool, roblox.com recorded a 0.11% monthly increase in global unique visits in March, compared to February. Likewise, the footfall on the website has grown 23.07% year-to-date against the same period last year.
RBLX shares have tanked 65.2% so far this year. The company’s poor performance in the fourth quarter and guidance have disappointed investors. The recent regulatory involvement may further upset investors. A wait-and-watch strategy seems to be apt for investors interested in Roblox.
Learn more about the Website Traffic tool in this video by Youtube sensation Tom Nash.