Roblox (NYSE:RBLX), a video game developer with a vast interest in virtual space, got a “buy” call from Citi analyst Jason Bazinet. In a note to clients, Bazinet had put a $59 price target on RBLX stock and declared that the company’s “strategic position, rapid growth and healthy pipeline of product enhancements” is enough to justify its large market valuation.
He then excused the decline in the company’s 2023 bookings estimates from $4 billion to $3.6 billion, saying “We believe these lower estimates are now achievable even without the benefit of product enhancements.” Bookings refer to the company’s virtual currency called Robux — the stuff that players use to buy things they want in Roblox virtual space. A drop in estimates means less spending by consumers.
Here is why RBLX stock is not a buy for me in the near term.
Like other tech stocks, RBLX stock benefited from Covid-19-driven aggressive patronage in 2020 and part of 2021. But what really bolstered the company’s attraction was the growing attention on the metaverse in 2021.
However, despite reporting 45.5 million daily active users in 2021, 67% were below the age of 16 while only 14% of users are 25 and above.
It means the company’s largest population is the age group with limited budgets. Therefore, it will take a series of product improvements to lure older users who can really spend to its platform but given how alien most adults are to the concept of virtual space, it will take time, money and real push from giant firms like Meta Platforms (NASDAQ:FB) to actualize it.
Also, the company is not immune to global happenings. RBLX stock has dropped over 58% year-to-date on the back of rising interest rates and growing global uncertainty. Like most stocks, Roblox will remain subdued in the near term.
RBLX stock gained 1.5% to $46.64 in premarket trading before pulling back to continue its bearish trend that started earlier in the year. Roblox has now shed 6.6% as of the time of writing.
The decline was after stock traders took into account the analyst note and the company’s numbers while factoring in external factors like the slow down in global growth due to the ongoing war in Ukraine, rising consumer prices in the U.S. and many more. Follow their lead for now and don’t buy RBLX stock here.
On the date of publication, Samed Olukoya did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
