Roblox Analysts Divided On Timing Of Margin Expansion, $5B Market Cap Correction Is 'Excessive'

Zinger Key Points
  • Roblox’s stock already reflects reflect the near-term headwinds, one analyst said.
  • The company’s EBITDA margins are unlikely to expand for a year from now, another analyst added.

Shares of Roblox Corp RBLX were rising in early trading on Thursday, after tanking in the previous session on the company’s revenue miss.

The results came amid an exciting earnings season. Here are some key analyst takeaways from the earnings release.

  • Morgan Stanley analyst Matthew Cost upgraded the rating from Underweight to Equal-Weight, while raising the price target from $26 to $30.
  • Needham analyst Bernie McTernan reiterated a Buy rating, while reducing the price target from $48 to $40.
  • Stifel analyst Drew Crum reaffirmed a Buy rating, while cutting the price target from $47 to $41.
  • Benchmark analyst Mike Hickey maintained a Buy rating and price target of $35.
  • Roth Capital Markets analyst Eric Handler reiterated a Buy rating and price target of $48.

Check out other analyst stock ratings.

Morgan Stanley: Roblox reported downbeat second-quarter results, “with bookings/EBITDA 1%/27% below our estimates,” Cost said in the upgrade note.

Following the sell-off in the stock year to date, “we believe that shares now fairly reflect the near term headwinds (e.g. 2H:23 bookings deceleration), balanced against the longer term opportunities to drive growth and operating leverage,” the analyst added.

Needham: Investors are now “increasingly focused on profitable growth” and Roblox seems to be “at an important strategic point where they are nearing the end of their post pandemic investment cycle where they had to match infrastructure and personnel costs to the pull forward of bookings onto the platform,” McTernan said.

“In this environment, we expect the market will be looking for signs of operating leverage, with an early signal with infrastructure leverage coming soon, but we do not expect YoY adj. EBITDA margin expansion until a year from now,” he added.

Stifel: Roblox’s Q2 results exerted pressure on shares, Crum stated. “Bookings growth was healthy (albeit slightly below consensus), but it was AEBITDA performance and a lack of conviction (for investors) around the path for improvement going forward, that seemed to weigh on the shares."

“With that said, we believe 2Q23-3Q23 was or is a likely bottom for AEBITDA margin, with gains thereafter as moderating investment spend yields operating leverage,” the analyst further wrote.

Benchmark: “The quarter showcased robust KPIs, and the company achieved a positive operating cash flow,” Hickey said.

He added, however, that Roblox had “exhibited occasional bouts of operational discipline which, although commendable, haven't established a significant trend.”

Roth Capital Markets: “We recognize that Roblox as a high multiple, growth stock will not be treated kindly for a miss, but in our view a $5bn market cap correction is excessive,” Handler stated.

“In fact, we came away pleased with key data points associated with international growth, aging up, and advertising,” he added.

RBLX Price Action: Shares of Roblox had risen by 2.21% to $30.10 at the time of publication Thursday.

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Posted In: Analyst ColorEarningsNewsUpgradesPrice TargetReiterationTop StoriesAnalyst RatingsMoversTrading IdeasBenchmarkBernie McTernanDrew CrumEric HandlerExpert IdeasMatthew CostMike HickeyMorgan StanleyNeedhamRoth Capital MarketsStifel
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