Is Roblox stock a buy? No, says Roth Capital

A strong finish to the 2022 year is not enough to move the needle for Roth Capital Partners analyst Eric Handler on video game company Roblox (Roblox Stock Quote, Charts, News, Analysts, Financials NYSE:RBLX). Handler reviewed Roblox’s fourth quarter numbers in a Friday report to clients where he maintained a “Neutral” rating on the stock while raising his target price from $35 to $45 per share.

Creator-focused gaming platform Roblox announced fourth quarter and full-year 2022 financials on Wednesday, coming in with revenue up two per cent year-over-year to $579.0 million and bookings up 17 per cent to $899.4 million. Average Daily Active Users (DAUs) were up 19 per cent year-over-year to 58.8 million. For the full year, revenue was $2.2 billion, up 16 per cent from 2021.

“As bookings re-accelerated late in 2022, we saw immediate improvements in adjusted EBITDA margins. For the full year, we were able to make important investments in infrastructure and trust and safety largely out of cash flow from operations,” said CFO Michael Guthrie in a press release.

Commenting on the results, Handler said Q4 bookings and adjusted EBITDA easily outpaced estimates, with the $899 million in bookings coming in ahead of his forecast at $892 million and the consensus call of $871 million. Adjusted EBITDA at $183 million was also better than the Roth Capital forecast at $106 million and the Street at $106 million.

Handler said the rise in DAUs helped push up Roblox’s topline, with growth of 24 per cent and 21 per cent in DAUs in Europe and Asia Pacific, respectively, and a significant 27 per cent rise in overall users over the age of 13. Gross margin was also a surprise to the upside at 78.8 per cent compared to Handler’s forecast at 77.3 per cent.

“The positive impact from broader rollouts associated with auto-translation, voice chat, facial expressions, and the implementation of experience guidelines should provide strong carryover benefits for the coming year. The strong sustainability of the user community has already been seen with January bookings of $269 million, representing 21 per cent year-over-year growth,” Handler wrote.

At the same time, the rosier outlook still doesn’t jibe with the stock’s current valuation, according to Handler, who is now forecasting 2023 bookings at $3,418.3 billion (previously $3,329.5 billion) and EBITDA at $338.4 million (previously $245.5 million).

“We have raised our forward estimates while increasing our price target to $45 from $35. However, we continue to find valuation expensive at 8x/7x bookings for 2023/2024, especially in light of ongoing EBITDA margin contraction and free cash flow likely remaining negative,” he said.

At press time, Handler’s $45 target represented a projected one-year return of 3.3 per cent.