Roblox Vs. Fortnite Rivalry: Analyst Confident In Roblox's Monetization Expertise

Wedbush analyst Nick McKay reiterated Roblox Corp RBLX with an Outperform and a $53 price target.

The analyst expects Roblox to deliver fourth-quarter upside, with gift cards, new platforms, and recent product innovations extending the positive momentum seen throughout the year’s first three quarters. 

The incremental headwind from Epic Games’ new Fortnite content is a critical risk to his optimistic view. 

McKay noted that the lack of Fortnite on mobile platforms has likely helped create two divergent player bases. 

Also Read: Roblox Eyes Global Expansion: Analyst Hypes Platform’s Potential

The analyst is confident that Roblox’s monetization expertise across mobile, its website, and prepaid cards limited the potential drag from Fortnite in the fourth quarter. 

Roblox appears to have de-risked initial fiscal 2024 guidance to a certain extent by blessing consensus figures at its Investor Day, as per the analyst. 

In the longer term, recent upgrades to the game’s economy, a massive opportunity within advertising, and increasing cost discipline suggest that its more bullish high-level expectations for 2025 and beyond are achievable.

McKay’s fourth-quarter estimates are for bookings and adjusted EBITDA of $1.080 billion and $180 million, vs. consensus of $1.075 billion and $190 million, versus last year’s figures of $899 million and $183 million. 

Roblox previously blessed consensus of $1.065 billion and $173 million. The analyst noted that his bookings estimate is modestly below the whisper number, with the Buy Side expecting growth just above 20%. 

In November, Roblox endorsed Street estimates of around $4.030 billion and $489.9 million, with his current forecast at $4.035 billion and $500 million and current consensus at $4.034 billion and $515 million. 

McKay expects Roblox to push past the 12% margin level implied by the unofficial guide, with operating leverage across the cost of revenue, headcount, infrastructure, and trust and safety. 

Also, Roblox is well-positioned to benefit from lower mobile platform fees (with Apple caving in Europe) and ad expansion (given its demographics, engagement levels, and user base size), as per the analyst. 

In the long term, its expected growth of 20% plus for 2025, 2026, and 2027 and margin expansion of 100 – 300 bps for each of the next 3 – 5 years appear reasonable for the analyst. 

Finally, the analyst said that first-quarter consensus bookings of $906 million appear reasonable, with the implied 8% margin seeming low.

Price Action: RBLX shares traded lower by 0.08% at $39.11 on the last check Wednesday.

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