Roblox (NYSE:RBLX)
Roblox (NYSE:RBLX), an online gaming platform popular among children, has not been well received by investors on Wall Street. The underweight rating (i.e., sell) issued by Barclays bank upon initiation of coverage for Roblox stock yesterday saw the price down by more than 6%. However, it recovered soon, and the day ended on a high note. Up 5.7% as of 12:12 PM ET on Wednesday, Roblox stock upward trend continues.
What are the Reasons?
First, let’s look at the issues raised by Barclays. The bank claims that players aged 5 to 24 make up Roblox’s primary demography. Moreover, Roblox (NYSE:RBLX) has already attracted roughly 30% of this age bracket as clients in Europe and the United States. Such gamers prefer to spend more money per user on Robux virtual currency.
Barclays predicts that this will limit Roblox (NYSE:RBLX) ability to expand in the lucrative European and American markets, forcing the company to go to less wealthy areas of the globe for user growth. The analyst adds that this may signal “additional possible lower adjustments” to Roblox’s projected development.
What’s Next?
I agree with Barclays to the extent that this is true. Still, I worry that it’s missing something crucial, and the fact that the Roblox stock price quickly recovered after falling in reaction to Barclays’ letter suggests that other investors could feel the same way.
Roblox (NYSE:RBLX) major demographic may be children and young adults. Still, suppose the platform can retain these users as they mature (and become richer). In that case, it will be able to continue earning income from both its current user base and the children and young adults who will eventually become its core population.
Roblox stock is now valued at over nine times trailing revenue, or around 68 times trailing free cash flow, raising the issue of whether or not the company can sustainably expand to justify these multiples.
While still positive, free cash flow is predicted to fall this year and not recover to its prior trailing-12-month level until 2024. (according to forecasts compiled by S&P Global Market Intelligence). Also, I agree that there is a chance Roblox stock won’t expand quickly enough to warrant its current price.
Roblox stock price increase may or may not continue, so take advantage of it.
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Roblox stock has risen even more Today as investors consider that Barclays possibly exaggerated the threats to the company’s expansion.
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Author Shariq Khan 
