AI-Driven Automation To Drive Roblox's Margins By 2030, Analyst Boosts Target

Truist Securities analyst Matthew Thornton reiterated a Hold rating on Roblox Corporation RBLX, raising the price target to $45 from $42.

Thornton believes AI should have a material impact on content creation for RBLX in terms of speed and quantity of quality content to market. However, AI should also have a meaningful effect on RBLX's cost structure longer-term, the most tangible being Trust & Safety costs, the analyst notes. 

RBLX had 2300 dedicated 3rd party T&S agents (mostly overseas) as of 2020 per the S1 (and "thousands" as of 2022 per the 10K), the analyst adds. 

Even at USA minimum wage ($7.25/hour, 40 hours per week, 48 working weeks per year), and assuming that 2300 hasn't/doesn't increase with user growth (which should be conservative), AI-driven automation of 3P T&S headcount would increase 2030 AEBITDA margin by ~50bps, Thornton adds.

Going ahead, the analyst continues to expect RBLX to make its way to other platforms, though again, the incremental lift is likely to be pretty modest.

Thornton estimates Xbox to have accounted for at least 2% of RBLX bookings in 2022, given Xbox skews western/developed markets (which tend to have much higher monetization rates per player).

The analyst estimates daily user growth of 23%/18%/15% in 2023/2024/2025 (versus 23% in 2022) driven by the international segment.

Thornton views the forward consensus AEBITDA as too low in the short term.

For 3Q, AEBITDA is estimated at $73 million (vs consensus of $61 million-$64 million), for 2023 it is estimated at $388 million (vs consensus of $344 million-$352 million), and for 2024 AEBITDA is expected to be $502 million (vs consensus $488 million-$505 million).

Price Action: RBLX shares are trading higher by 2% to $45.35 on the last check Tuesday.