Roblox Gains Traction With Metaverse, Shares Pop

Key Points

• Roblox pops on signs of growing momentum. 
• The company outperformed in Q4 and gave a favorable outlook. 
• Institutional activity continues to grow. 

It is because of momentum if you wonder why Roblox NYSE: RBLX shares popped more than 20% in a single session. After years of struggling to grow beyond the core age group and operating model (games for kids under 17), the company is showing traction. Roblox reports strong growth with the over-17 demographic that is boosting user count, hours of engagement and bookings.

What this means for the market is an affirmation of the metaverse, not just Roblox, which could help lift stocks from Nvidia NASDAQ: NVDA to Meta Platforms NASDAQ: META. 

“2022 was a year of innovation and invention for Roblox,” said David Baszucki, Founder and CEO of Roblox. “With 65 million daily active users in January, we are driving towards our vision to reimagine the way people come together by enabling deeper forms of expression, communication and immersion.”

Roblox Loss Widens As Revenue Accelerates 

Roblox had a tepid Q4, but internal metrics point to acceleration, and the January Key Metrics report confirms that. The revenue came in at $579 million, up only 2% versus last year, but bookings were strong, as were DAUs and hours engaged. The company reports strong growth across all age groups, not just +17, and all geographies.

Regarding average daily users and hours of engagement, DAUs increased by 19%, while hours of engagement grew by only 18%. This led to a 2% reduction in booking per DAU, but bookings remain very strong at 16.8% because it indicates future revenue growth.  

The strength in revenue drove solid cash flow, although cash flow fell slightly compared to last year. The most significant difference here is that FCF turned negative due to the company's investments during the quarter. Concerning the stock price, the outlook for Q1 has the market moving.

The company reports that revenue is up 22% to 24% versus last year with a 20% increase in bookings. This confirms indications given by the Q4 results and suggests a further business acceleration. Assuming this level of growth continues throughout the quarter revenue for Q1 should top $775 million and set a new record. 

Sell-Side Sentient Toward Roblox Is Mixed

The sell-side sentiment toward Roblox is mixed, but the takeaway is they are hodling this stock. Hodling, holding on for dear life in hopes that it pays off. This means that institutions hold about 72% of the company but their buying has slacked off while the analyst sentiment has slipped.

The analysts have the stock pegged at a firm Hold compared to last year’s Moderate Buy and the price target is down more than 50%. There has not been any analyst activity picked up by Marketbeat.com analyst tracking tools yet but we can assume they will be bullish. Until then, the consensus target is about 35% below the post-release price action. 

The Technical Outlook: Roblox Bottomed, Is Reversal Next? 

The price action in Roblox hit bottom in early 2022 and confirmed that bottom at the end of the year. Now the price action is moving higher with the range established and heading up toward the baseline of a double-bottom. That baseline is at $54 and may cap gains in the near term. If the market can get above this level, perhaps spurred by the next 2 Key Metrics reports, it may increase to the $80 level.