Roblox Stock Impresses Analysts: Here's Why

The video game company Roblox Corp RBLX received its first analyst reports after going public on March 11 with the first wave of observations mostly very positive about the company's future.

The San Mateo, California-based company, which accommodates 32.6 million daily active users on its global online platform during 2020, started trading at $45 a share and hit a high of $79.10 on March 17. The company is predicting 2021 revenue in the range of $1.44 billion to $1.52 billion, which would represent year-over-year growth between 56% and 64%.

Roblox expects to end 2021 with 34.6 million to 36.4 million daily active users, representing year-over-year growth of 6% to 12%.

Bank of America Analyst Reacts: Ryan Gee, research analyst at Bank of America Securities, pointed out that Roblox was the No. 1 mobile app in the U.S. during 2020 and said the platform "combines the communication utility of social networks (TikTok, SNAP) with the monetization/engagement of AAA gaming (Fortnite, Call of Duty, GTA Online), and has democratized content creation such that any user is a creator (Unity, YouTube, Twitch)."

Gee added that the platform's distinctive qualities "offers mobile exposure with less-relative capital risk than what we associate with traditional content creators." While raising concerns of a potential deceleration in a stronger economy and the challenge to attract both older and global users, he noted the strong stock performance reflected "potential growth opportunities and margin expansion ahead."

Morgan Stanley Analyst Reacts: Brian Norwalk, equity analyst for Morgan Stanley, wrote that the company was "still in the early innings of its user opportunity," as its daily active user base covers only 6% of the roughly 500 million potential players in the countries where it is active, adding that a "21% '20-'24 CAGR user growth ahead" would only raise that level to 14% by 2024.

Looking forward, Norwalk stated that Roblox faced a challenge in maintaining safety standards for the 55% of its current base that is under the age of 13.

But he also highlighted a pair of major opportunities that could bring the company to the next level: a successful launch and expansion in China through a joint venture with Tencent Holdings Ltd TCTZF and the ratcheting up of advertising opportunities on its platform.

"By combining faster user growth in existing geographies, a successful launch in China, and the integration of advertising, our bull case contemplates $8.0bn/$2.9bn of total '24 bookings/EBITDA, ~70%/~150% above our base case estimates," Norwalk wrote.

Goldman Sachs Analyst Reacts: Michael Ng, analyst with Goldman Sachs, shared Norwalk's optimism for the Chinese market's impact on Roblox. He also detailed how the company's enabling of user-generated content "effectively allows RBLX to outsource game
development costs to its creators while retaining the economic upside with a diversified portfolio of content, reducing hit-risk."

Ng also praised the diverse range of content on its platform, which could broaden its appeal to wider audiences.

"Notably, RBLX's platform includes content developed by individual creators and video game studios, as well as non-endemic businesses such as film/TV studios (e.g., Warner Bros., Netflix) and musical artists (e.g., Lil Nas X), which demonstrate the use case for non-gaming general entertainment that should broaden the appeal of the Roblox platform," he wrote.

RBLX Ratings and Price Targets: Gee initiated a Buy rating and a $78 price target.

Norwalk initiated an Overweight rating and an $80 price target.

Ng initiated a Buy rating and an $81 price target.

At last check, Roblox was trading at $70.26, up 5.08%.

(Photo courtesy Roblox.)