Needham analyst Bernie McTernan reiterates Roblox Corp RBLX with a Buy and a $48 price target. The analyst spoke with 11 RBLX developers.
On the monetization environment now vs. a year ago, 30% of developers indicated it was better YoY vs. 59% when he did his checks in June FY22. However, no developers said it was worse YoY vs. 6% last time.
With a more positive view, the developers spoke to monetization opportunities from immersive advertising, engagement-based payouts, and better analytics.
The developers indicating no change pointed to RBLX essentially following the growth of the mobile gaming marketplace.
He heard increased uncertainty from developers on the type of content to focus on, lower quality games involving lower investment and less risk, or higher quality games.
Regarding lower-quality games, developers mentioned it is more challenging to build an audience, given restrictions for advertising to users younger than 13. Therefore, game creation is more like a lottery ticket.
They also noted that it is more difficult for new games to stand out from older and more established ones.
On higher quality games, the analyst thinks it is positive that RBLX provides better tools for making these games. Still, the increased availability of advertising is increasing the investment necessary to stand out.
RBLX is also supporting developers, with the most prominent developer he spoke with indicating engagement-based payouts have increased over the past six months and the introduction of immersive advertising benefiting higher-use games.
That said, he heard there is still a learning curve to immersive advertising, and developers are still experimenting.
None of the developers he spoke with currently use AI tools to code or generate game material. However, two developers said AI should eventually be a significant part of creating/ designing games.
On Epic Games' Unreal Editor for Fortnite, none of the developers he spoke with also created for that platform. However, the largest developer, he said, noted that Fortnite is rapidly growing its UGC sector and sees the platform's potential to compete with Roblox.
Price Action: RBLX shares traded higher by 4.02% at $40.14 on the last check Wednesday.
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