Cowen rates Roblox at Underperform, thinking that the metaverse is still in its infancy.


Roblox (NYSE:RBLX)

After Cowen began coverage of the stock with an Underperform rating, the Roblox (NYSE:RBLX) stock market is beginning its Monday with some tiny gains generally higher in the technology sector.

Analyst Doug Creutz predicts that “with the (virtual) world at risk,” competition in the “metaverse,” an area where Roblox and other significant names in technology are attempting to make claims, will be heated.

Creutz observes that the idea that Roblox (NYSE:RBLX) is a significant participant in the metaverse has contributed to the company’s run-up to a high valuation of 53 times the projected 2024 EBITDA. However, the firm is likely to be one of several competitors planning to depend on a prosperous future in the virtual sector.

According to what he has said, “the technological answers required to build a real metaverse may not materialize within a horizon of five to ten years.” “The conceptually appealing characteristics of a metaverse appear to be in conflict with the reality of an Internet that has become controlled by a small number of centralized platforms,”

Roblox (NYSE:RBLX), on the other hand, is not in a fantastic position since it does not have any exclusive material and has a “substantial” tilt toward younger people, according to Creutz. This is true even if the metaverse arrives ahead of schedule.

“We believe Roblox (NYSE:RBLX) faces three structural challenges to the future of its metaverse. These challenges are (1) poor economics for content creators; (2) the need to moderate high volumes of user-generated content for its young audience; and (3) the substantial use of equity compensation, which risks high employee turnover and could hurt the company’s ability to innovate.”

According to him, it’s a fruitful platform for video games and other forms of entertainment, a “primary” destination that offers appealing features for pre-teens and tweens, and so on. However, if the rivalry from giant tech and media competitors becomes more intense, the absence of controlled content and intellectual property may become a key liability.

Because of this, Creutz now considers Roblox (NYSE:RBLX) to be more comparable to a conventional entertainment platform. In the base case, it is assumed that the daily active users will reach 67 million in the fiscal year 2024 (and that margins will reach their lowest point this year). This results in an enterprise value-to-EBITDA multiple of 22x, which leads to a price target of $31, implying a downside of 32%.

The important forthcoming catalyst for the firm is its Investor Day, which will begin on Thursday at 12:00 Eastern Time.

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