After a drastic drop in the value of gaming platform publisher Roblox (Roblox) from US$140 to around US$30 (a drop of almost 80%), the price seems to have stayed in this vicinity for the last few months. At the same time, the value of the VanEck Gaming ETF (BJK) has fallen by 27%. It seems hard to deny the bloodshed on the value of this company's shares. However, why have the company's shares shrunk so much and what can we expect in the future?
Source: Conotoxia MT5, BJK, Weekly
About the Roblox company
The company Roblox is a technology company that develops and operates an online gaming platform. Its business model seems interesting in that it allows users to create and share their own games and use games created by others. The Roblox platform is popular especially among young gamers and offers a wide range of games from different categories, including arcade, adventure and educational games. The company mainly earns its revenue from commissions on user-created content sold on its platform.
The company now reports that it has as many as 58.8 million active users (up 24% year-on-year), who have collectively played for as many as 13.4 billion hours this year (up 20% year-on-year). The company's CFO says in a commentary that they are "pleased with the third quarter growth in users, engagement and bookings, demonstrating the significant progress they are making on key platform initiatives such as maturation and international growth". The company appears to be continuing to grow despite the negative sentiment for the industry. However, in a bid to be critical, let's look at what its financial performance is?
The bitter face of Roblox's financial performance
One thing that cannot be denied to the company is its rapid revenue growth since 2021, which has averaged 32% per year. Currently, revenues seem to be slowing down, growing by 2% year-on-year. Another positive note is the company's operating cash flow, which is consistently positive, which may indicate the potential for further growth for the company. However, the positive data seems to end there. The loss from operations in the third quarter of this year reached its record at USD 300 million (a 287% year-on-year increase in loss). The company has not made a profit from its core business since 2020. The main part of costs appears to be generated by the company's research and development expenses accounting for an average of 28% of costs. This is followed by costs related to infrastructure maintenance and system security, which account for an average of 23% of costs.
The company appears to be betting heavily on developing its system and platform. Additionally, it is possible that it maintains a high level of liquidity, holding as much as US$3bn in cash, which could be used for its further development. However, it is hard not to see problems with achieving profitability from its operations.
What does Wall Street think of Roblox's share price?
According to the Market Screener portal, the company has 25 recommendations, and among them, the majority are those with the content: "Buy" and "Hold". The average target price is set at USD 41.74, 29% above the last closing price. The highest target price is at USD 71 and the lowest is USD 20.
Source: Conotoxia MT5, Roblox, Weekly
Grzegorz Dróżdż, Junior Market Analyst of Conotoxia Ltd. (Conotoxia investment service)
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