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Roblox stock price prediction: What’s next for the metaverse builder?

By Alejandro Arrieche

Edited by Alexandra Pankratyeva


Updated

Roblox sign logo at headquarters. Roblox is an online gaming platform and game creation system - San Mateo, California, USA - 2020
Roblox stock price prediction: What’s next for the metaverse builder? – Photo: Shutterstock

Roblox stock value has dropped nearly 40% from its 22 November all-time high of $141.60 per share as negative momentum for growth stocks has accelerated amid the confluence of multiple catalysts.

First, concerns related to quickening US inflation along with recent remarks from the Federal Reserve regarding an upcoming monetary policy change have pushed the yield of US Treasury bonds to their highest level since the Covid-19 pandemic started.

For young companies in up-and-coming ecosystems such as Roblox, which was created in 2004, higher Treasury yields are considered a negative price driver as they tend to lead to sharp declines in the valuation of high-risk equities.

Meanwhile, the latest quarterly earnings report from the company unveiled that Roblox Corporation may be starting to lose the fight against its tough comparables from last year as the pandemic tailwind that once lifted its performance is starting to lose steam.

What can be expected from this metaverse stock in the challenging environment? In this article, we’ll take a closer look at the latest Roblox stock news, technical and fundamental situation, and third-party predictions to outline plausible scenarios for the future.

Roblox stock analysis: Price drivers and technical view

Roblox (RBLX) all-time performance: Technical analysis

The Roblox chart shows the stock has been on a sharp downtrend since it hit its November all-time high despite nailing the market’s estimates for the firm’s revenues for the third quarter of the 2021 fiscal year.

Curiously, the decline seemed to start only days after the company held its 2021 Investor Day event on 16 November. Even though the share price surged for a few days following this event, the market’s sentiment appeared to take a U-turn on 22 November when shares of the gaming platform declined nearly 11% and started their journey to its recent lows of $84.37 per share (7 January close).

The chart also showed that a well-defined descending price channel was formed and last week’s action nearly closed the open gap that was left behind after the company published its latest quarterly report.

Meanwhile, the stock ended the week below its 200-day simple moving average and seemed embarked to tag the $77 horizontal support shown on the chart.

Momentum oscillators were also favouring a bearish outlook for the Roblox stock (as of 10 January) as the relative strength index (RSI) was on a clear downtrend and has drifted below 50 (indicating a bearish signal), while the moving average convergence divergence (MACD) remained below the signal line and continued to decline to negative levels.

Moving forward, the following are some of the variables that should be considered to draft a plausible Roblox share price forecast.

The Federal Reserve’s monetary policy decisions

Almost two years after the US central bank adopted a highly accommodative stand to keep the financial markets afloat amid the turbulence caused by the pandemic, officials seem ready to turn the reverse course.

This policy change started with the announcement of a scaled tapering of the Fed’s asset purchase programme followed by what would be the first post-pandemic interest rate hike – an event that is expected to take place in 2022. 

Meanwhile, the release of the Fed’s minutes – a transcript of the discussions that took place during the most recent FOMC meeting – showed that officials have also started to discuss the possibility of winding down the central bank’s massive balance sheet in the future.

A reduction in the Fed’s total assets would result in a decline in the amount of liquidity that flooded the market right after the pandemic started and could prompt a risk-off attitude from market participants as the rapid recovery that the markets experienced after the health crisis was largely attributed to this multi-trillion dollar injection of cash.

For companies such as Roblox, which are considered riskier than larger corporations with more mature business models and robust balance sheets, an increase in interest rates and a tighter monetary policy might result in lower trading multiples.

Roblox’s ability to keep growing its business

Roblox is considered a growth stock. This means that the company’s ability to grow its business remains the most important variable that shapes its valuation instead of its current profit-generation capacity.

Roblox bookings

With this in mind, some operating metrics in the third quarter of 2021 started to show signs of a slowdown in the business’s advance. For example, quarterly bookings declined for the first time in many quarters on a sequential basis, dropping from $665.5m in Q2 2021 to $637.8m in Q3 2021. 

Moreover, the firm’s adjusted EBITDA as a percentage of bookings has also been deteriorating since the fourth quarter of 2020, moving from 35.2% to 21.3% in the last quarter. 

Increasing competition in the race toward becoming the go-to metaverse platform

Other companies aside from Roblox have dipped their toes into the metaverse industry including the social-media giant Facebook Inc., which was rebranded as Meta Platforms

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Other companies, including Nvidia and Microsoft, are also competing to become the leading platforms in this up-and-coming space.

“Our business plan for 17 years ago predicted this new category where people can come together. For the last 16 years, we’ve been innovating on this category, building an amazing community not just of players, but an amazing developer community – two million strong that makes everything on our platform a rich economy,” Roblox founder and CEO David Baszucki said in an interview to CNBC on 9 November 2021. “Our whole company is really focused on the innovation to drive and shepherd this vision of what some people call the metaverse – or human co-experience – forward,” Baszucki added.

Roblox stock fundamental analysis: Latest earnings

Roblox reported its financial results covering the third quarter of its 2021 fiscal year in November last year.

For the three months ended on 30 September, the company reported a 102% year-on-year surge in revenue at $509.3m while bookings ended the period 28% higher compared to a year ago at $637.8m even though they decreased nearly 5% compared to the previous quarter.

Meanwhile, Roblox’s daily active users (DAUs) increased to 47.3 million resulting in a 31% year-on-year jump.

Losses from operations for the same period ended at $77.45m compared to $51.52m Roblox shed during Q3 2020, while net losses ended at $74m compared to $48.6m the company lost the previous year’s quarter.

As for its adjusted EBITDA, Roblox’s has experienced a sustained decline in this non-GAAP metric since Q4 2020 even though its sales have continued to increase. In this past quarter, the firm’s adjusted EBITDA ended at $135.7m.

Free cash flows improved 7% to $170.6m compared to Q3 2020 marking the fourth consecutive quarter of positive FCF growth. 

By the end of this period, Roblox had nearly no long-term debt and reported total assets of $3.27bn including $1.93bn in cash and equivalents.

“Engagement is our north star. We’re very pleased that during the third quarter, people of all ages from across the globe chose to spend over 11 billion hours on Roblox,” said David Baszucki in the Q3 earnings release. “We are happy to report that the developer community earned over $130m in the quarter and is on pace to earn well over $500m this year. As we finish 2021 and head into 2022, we will continue to invest in innovative technology to enable our developer community to do what they do best – build and create.”

Roblox stock forecast: Analyst sentiment

According to data compiled by MarketBeat as of 10 January, the consensus recommendation for Roblox was bullish with a total of 11 out of 14 analysts covering the stock rating it as ‘buy’. The two analysts gave RBLX a ‘hold’ rating, while another one rated it as ‘sell’.

Meanwhile, the consensus Roblox stock price target was standing at $106.69 per share resulting in a 26.5% potential gain if that target was hit based on last Friday’s closing price of $84.37 per share.

Notably, Needham & Company initiated coverage of the stock in December with a buy rating and a price target of $136. Some prominent firms that also have a buy rating include Stifel Nicolaus, Morgan Stanley, and BTIG Research. 

On the other side, Mike Hickey from Benchmark lowered his price target for Roblox from $75 to $70 in August 2021, while Andrew Uerkwitz from Jefferies lowered his target from $92 to $86 in September.

Roblox (RBLX) analyst ratings and price targets

Roblox stock price prediction: Targets for 2022, 2025 and 2027

Commenting on Roblox stock future, Mikhail Karkhalev, an analyst at Capital.com, said: 

“2022 could be the year of the metaverse, and Roblox's investors could benefit from the trend. Roblox is a fairly popular gaming platform that is one of the leaders in its field and reaches a very large and diverse audience, including children. 
“In 2021, the company managed to significantly increase its revenue, which has grown by 119% compared to 2020 [for the nine months ended 30 September], however, the company continues to be unprofitable and compared to the same period in 2020, Roblox's losses have increased by 79% to $356m in 2021. 
“As a result, its shares have fallen drastically since November from $140 to $80. At the moment [10 January], the price looks extremely attractive to buy, but the company's financials are the most important factor to consider. If things pick up, Roblox stock could be considered for purchase with a prospect of a good yield. If the situation does not change, the stock could fall even lower.”

Meanwhile, the algorithm-forecasting services reported bullish RBLX stock forecasts as of 10 January.

WalletInvestor predicted that the price of Roblox could end 2022 at $128.798 per share. It further expected RBLX to hit $240.142 per share by the end of 2025. Although the service did not provide targets for 2030, its longer-term Roblox share price forecast suggested the stock could reach $277.156 in January 2027. 

GovCapital indicated that the price of Roblox could rise to $139.690 by the end of 2022 and move higher to $185.936 by the end of 2023. For December 2025, the algorithm-based prediction service expected that the price could hit $256.429.

When looking for Roblox stock predictions, it’s important to bear in mind that analysts’ forecasts can be wrong. Projections are based on fundamental and technical studies of the RBLX stock’s performance. Past performance is no guarantee of future results.

It is important to do your own research and always remember your decision to trade depends on your attitude to risk, your expertise in the market, the spread of your investment portfolio and how comfortable you feel about losing money. You should never invest money that you cannot afford to lose.

FAQ

Is Roblox stock a good buy?

Roblox’s business has been maturing and is now cash-flow positive – which can be considered good news. Meanwhile, the company has no long-term debt and enough cash to keep financing its expansion projects. That said, investors should keep an eye on the business’s performance in the next few quarters as more evidence that the company is starting to experience slower or negative growth could lead to a sizable decline in its valuation.

Will Roblox stock go up or down?

Nobody can predict what the price of a stock will do in the future. However, the third-party forecasting services cited above concluded that Roblox stock price could increase in the coming years.

Markets in this article

META
Meta Platforms Inc (Extended Hours)
494.38 USD
-1.24 -0.250%
MSFT
Microsoft Corp (Extended Hours)
421.46 USD
-0.48 -0.110%
NVDA
NVIDIA Corp (Extended Hours)
900.04 USD
-1.51 -0.170%
RBLX
Roblox Corp
37.95 USD
0.58 +1.560%

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