Late last month, in a moment that shook children, teenagers and parents alike, the Roblox [RBLX] gaming platform shut down for three days, causing a significant level of concern for Roblox’s share price.
The company – 50% of whose players are under 13 – said the outage was caused by an internal incident rather than a malicious external attack like a cyberhack. It told The Verge that the outage “involved growth in the number of servers in our datacenters and was not due to any peak in external traffic or any particular experience.”
A lack of regular updates brought some negative media coverage, frustrated gamers and, according to the company, approximately $25m in lost bookings, but it did very little to affect Roblox’s share price.
Roblox’s Soaring Share Price
Roblox’s share price did fall from $84.02 at close on 29 October, the morning after problems emerged, to $77 at the close on 8 November, but it has recovered to now sit at $126.12 as of 18 November’s close.
The primary catalyst for this growth is impressive third-quarter results, which revealed revenues up 102% to $509.3m year-on-year and 47.3 million average daily active users. That was up by 31% year-on-year and higher than the 43.3 million seen in the second quarter.
Rbolox's Q3 revenues were up 102% year-on-year
Bookings were up 28% to $637.8m.
Since the middle of May this year – after it floated in March – Roblox’s share price has soared 67% as it continues to prosper from the pandemic lockdown when gamers – many of whom are supposed to be remote learning – upped their hours, and newbies came on board looking for any kind of entertainment.
From its most recent numbers, it looks like fears that a re-opening of society, including the return of cinemas, sport and theme parks, would see user numbers fall away and harm Roblox’s share price have not materialised.
Analysts remain bullish about future growth for Roblox’s share price, with a consensus outperform rating and a target price of $105.10, according to Market Screener.
"This company is not just going to be a revenue machine, it’s going to be an earnings machine," CFRA Research analyst John Freeman told Reuters.
Freeman likes its video games, social media element and the platform that allows users to build their products. They can create their virtual worlds using avatars who can interact with others.
Morgan Stanley also likes the stock’s metaverse potential. A metaverse is a virtual world of immersive experiences where people get together to watch, trade and play.
"It can fundamentally change the medium through which we socialise with others," equity strategist Edward Stanley said in a note as reported by Market Watch. “Shares of Roblox are already moving on the trend.” Morgan Stanley has an overweight rating and a $88 price target on the stock.
There may also be more brand tie-ups on the Roblox metaverse, like the recent Gucci Garden, where avatars could look at designs and even buy products.
Rupantar Guha, analytics firm GlobalData's gaming analyst, told Nasdaq: "Growing brand involvement will expand Roblox's user base from children to adults, delivering further growth as the metaverse evolves."
“This company is not just going to be a revenue machine, it’s going to be an earnings machine” - CFRA Research analyst John Freeman, per Reuters
Challenges for Roblox’s share price
There are some clouds on the horizon for Roblox’s share price. Its revenue growth for the third quarter was a slowdown on the second quarter, with its bookings rise down on the same period last year.
It may be unfair to compare current activity with the pandemic, but it could be a sign that, although still growing, its $62bn valuation may come under increased pressure as normal life resumes.
It’s also important to note that Roblox is still loss-making. According to The Motley Fool, Analysts expect the group to post a net loss of $437m this year and a $397m loss next year.
There are also continued concerns about the impact of video games on children that are particularly relevant to Roblox. The Chinese crackdown on teenagers’ usage, limiting them to only three hours of video gaming a week, may seem draconian but will likely find its supporters in the west, certainly amongst parents.
Another small blow came for Roblox’s share price when ARK Next Generation ETF sold off over 80,000 Roblox shares post-earnings. That may get some investors wondering whether now is a good time to say, ‘Game Over’.
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