Investors Should Use Weakness in Roblox as an Opportunity

Shares of Roblox Corp. (NYSE:RBLX) have been clobbered. Since November, the gaming stock fell from a high of $141.60 to a low of $36.04. All thanks to earnings, lowered price targets and downgrades. While the company reported a record number of daily active users, it also posted a wider than expected loss of $143.3 million, or 25 cents a share.

Roblox Stock IPO
Source: Miguel Lagoa / Shutterstock.com

That was far worse than expectations for a net loss of 12 cents. Worse, while bookings were up 20% year over year to $770.1 million, it was below expectations for $772 million. As a result:

  • BTIG lowered its price target from $99 to $84
  • Goldman Sachs (NYSE:GS) lowered its target from $124 to $108
  • Stifel (NYSE:SF) lowered its target from $90 to $65
  • Truist (NYSE:TFC) lowered its target from $92 to $70
  • Needham lowered its target from $83 to $60.

But I’m not writing the stock off just yet.

For one, the company’s daily average users grew 33% year over year to 49.5 million. Two, engagement hours were up 28% year over year to 10.8 billion. Three, not all analysts are bearish on the future of the Roblox stock, including myself.

Four, a great deal of negativity has been priced into the stock. Five, the company is exposed to a potential $30 trillion metaverse opportunity.

Analysts Are Still Bullish on RBLX

Daiwa analyst Jonathan Kees just initiated coverage of the gaming stock, with an outperform rating and a $56 price target.

As noted by TheFly.com, the analyst said, “While Roblox’s competition ‘remains quite strong,’ the addressable market is large and growing with much room for existing names,” adding that, “The company ‘has a lock on hard-to-reach users’ under age 13 and differentiators including 11M developers and speed and ease of use.”

Deutsche Bank analyst Benjamin Black also initiated coverage of the RBLX stock with a $60 price target with a buy rating. “We see Roblox as an early leader in the interactive digital creator marketplace, with growing moats and strong network effects,” Black said, as quoted by Investor’s Business Daily.

Roblox May Have Exposure to a $30 Trillion Market

The metaverse could be substantial for companies like Roblox.

Consider this. Emergen Research, for example, says the metaverse market could be worth up to $828.95 billion by 2028. Matthew Ball, the CEO of Venture Capital firm Epyllion says the metaverse could be a $10 trillion to $30 trillion market over the next decade.

There’s no way RBLX won’t benefit from that.

Even major brands are getting involved with the metaverse.

“The planet’s best-known companies and savviest marketers—from Walmart and Coca-Cola to Disney and Victoria’s Secret—continue to invest to stake their claim in the virtual worlds of the metaverse. Technology leaders such as Facebook/Meta, Google, Microsoft and Apple see the metaverse as the new frontier for advertising and digital experiences,” says AdAge contributors Joan Smith and Jen Friese.

Nike (NYSE:NKE), for example, recently teamed up with Roblox to create a Nikeland virtual world. Reportedly, the world will include Nike buildings, fields and arenas for players to compete on Roblox. Nike also filed for several new trademarks to design and sell virtual Nike sneakers and apparel in the metaverse.

Even companies like CVS Corp. (NYSE:CVS) and Walmart (NYSE:WMT) want in.

The Bottom Line on RBLX Stock 

Roblox didn’t have a great quarter. Bears jumped all over the stock with downgrades and lowered price targets. But not everyone, including myself, is bearish on the oversold stock. With exposure to a potential $30 trillion market, I’d use recent weakness in RBLX as an opportunity.

Plus, after a massive pullback, I’m willing to bet the worst is priced into RBLX stock.

On the date of publication, Ian Cooper 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.

Ian Cooper, a contributor to InvestorPlace.com, has been analyzing stocks and options for web-based advisories since 1999.


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