Critics Are Impressed With Roblox's Performance

Earlier this week, shares of Roblox RBLX –3.33% soared following the company's latest earnings report. Moreover, the report also convinced one bearish analyst on Thursday to switch to a neutral position due to the report.

‍

In a Thursday note to investors, Benchmark analyst Mike Hickey upgraded Roblox stock (ticker: RBLX) from Sell to Hold and removed his $21 target, since Benchmark does not assign targets to stocks with Hold ratings.

‍

With Roblox, users are able to create their own virtual worlds and interact with other players in them. Digital goods can be sold by creators on the platform. It is estimated that Roblox has a user base of mainly children and teenagers.

‍

In response to better-than-expected results for the fourth quarter, Roblox shares rose 26% on Wednesday. Hickey's upgrade led to a 3.3% decline in Thursday's stock price. Hickey notes that Roblox's January figures demonstrated continued growth.

‍

“It appears [Roblox] has worked through the impact of the pandemic on its business and has been seemingly immune to the macroeconomic pressure on consumer spending at the present time," Hickey wrote. “There seems to be a stabilizing trend in the mobile game market that could be a compelling sign of a growing trend to come.”

‍

Hickey wrote in a report that he is optimistic about the firm's decision to rein in investment spending, but he isn't yet convinced that the stock is the right thing to buy.

‍

It's important to be cautious when it comes to ambitious growth initiatives, including advertising schemes geared towards children that extend beyond core gameplay and could lead to an increase in regulations," he wrote. “We believe that RBLX will continue to appeal primarily to young children. Most of the kids will grow up and leave the game when they become teenagers. It's our belief that a lot of kids will embellish on their age, which may cause the average to be skewed.”

‍

In addition to Hickey, other analysts weighed in on Roblox Thursday. Despite maintaining an Underweight rating, Barclays analyst Mario Lu raised his price target to $28 from $21.

‍

“Despite a strong performance from console titles such as Call of Duty Modern Warfare 2 in the December quarter, Lu wrote that bookings and user growth among the 17-24-year-old cohort were equally impressive. Despite competition from Activision Blizzard's (ATVI) newest Call of Duty title,” Lu said reservations and user growth were equally impressive. “RBLX could be a major beneficiary of the current meta with AI generative technology as it pertains to content development within the platform, though widespread adoption is likely still a few years away."

‍

In spite of this, Lu believes it is still worthwhile to monitor the firm's spending. Aside from that, he also thinks that the stock is a bit pricey at this point, as it trades at seven times the estimated fiscal 2024 bookings.