Roblox Analyst Sees Significant Downsides As Pandemic Recovery Dynamics Play Out With Additional Headwinds From China

Benchmark analyst Mike Hickey maintained a Sell rating for Roblox Corp RBLX with a $21 price target.
Hickey has reduced 3Q22 and FY22 financial estimates, as September KPIs confirmed a disappointing quarter ahead of its November 9 earnings results date.
Hickey was astonished over RBLX's decision to continue elevated investment spending that should exaggerate a significantly challenging operating environment and deteriorate free cash flow.
The analyst is cautioned that the pandemic pulled forward growth, and normalized behavior may dampen outlier engagement trends.
The current consumer spending pressure on mobile game experiences could extend to the Roblox platform.
Most children do not personally pay for their game experiences on RBLX and are, therefore, more readily open to switching games.
Because parents are not directly investing in the service, they are less emotionally connected and can easily throttle back spending during rising inflation.
Hickey was cautious on ambitious growth initiatives, including advertising schemes focused on children that extend beyond core gameplay and could lead to increased regulations.
He thought RBLX would continue to appeal primarily to young children, and most would age out when they become teenagers.
He believed many kids would embellish on their age, which can skew the average, giving a false perception that the RBLX demo is aging up.
He was not convinced that RBLX offers a safe play environment.
He was cautious over expense growth that now appears reckless.
He believed China's growth was impaired.
Price Action: RBLX shares traded higher by 2.17% at $42.33 on the last check Thursday.

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