Roblox: Bright Future Needs A Pause

•  Roblox has rallied too far off the lows having doubled in only months.
• The company still hasn't turned around the monthly metrics with the last bookings level down nearly 10%.
• The stock is far too expensive back trading at near 10x forward sales targets.

After a big rally since the mid-June low, Roblox (NYSE:RBLX) has clearly run too far for the current market realities. The stock needs a pause to refresh. My investment thesis remains bullish over the long term, but the current stock view is much more Neutral with the gaming platform still struggling to top tough comps while the stock recently doubled from the lows.

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Update - Nov. 9

Roblox falling 21% today is the exact pause SFC was looking for.  The chart looks ugly here, so one should wait for to make sure the prior lows hold. 

Update - Oct. 17 

As predicted, the downgrade last week was the final stages of the bear market. Roblox has now turned the quarter back into growth mode after absorbing the covid pull forwards. Though, the stock isn't exactly cheap at 7x forward sales. 

• Roblox (RBLX) said that bookings, a key measure of the company's business health, were in a range of $212M and $219M, up between 11% and 15% from the same period a year ago. The company said bookings were impacted by 6% during September due to foreign currency exchange rates and the strength of the U.S. dollar.
• Daily average users [DAUs] rose 23% from September 2021, to 57.8M users. Roblox (RBLX) also reported 4B "hours engaged" during the month, a gain of 23% from a year ago.

Update - Oct. 11

Final stages of the bear market with this downgrade calling Roblox a fading option on the metaverse.  

• Roblox (NYSE:RBLX) shares fell nearly 5% on Tuesday as investment firm Barclays started coverage on the online gaming company, noting it is a "fading call option on the metaverse."
• The firm said that Roblox (RBLX) was one of the "main beneficiaries" of the pandemic, as users increased more than two-and-a-half times since the first-quarter of 2020. However, since then, growth has started to stagnate as the company's core demographic -- between the ages of 5 and 24 -- is already heavily penetrated to the tune of some 30%, "suggesting both user and bookings growth may be challenged moving forward."
• "On the creator side of the platform, we view Roblox's 71% take rate as an impediment to on-board new experienced developers when compared to the more attractive economics of building on other engines such as Unity and Unreal," the analysts wrote.
• The analysts added that while Roblox (RBLX) has a "large advertising opportunity" in 2023 with immersive ads, the stock is seen as "overvalued", trading at 5 times estimated 2024 bookings and 41 times estimated 2024 EBITDA.

Update - Sept. 9

Interactive digital ads is a promising revenue model for Roblox. The stock has definitely hit bottom, but valuation becomes an issue at $50. 

-Roblox stock (NYSE:RBLX) has tagged session highs, up 8%, as the company prepares to roll out ads on its platform.

-That marks a new revenue stream to help diversify the company's business, which to date has focused on selling virtual goods. It's not leaving that behind, Chief Product Officer Manuel Bronstein said: "We have an amazing transactional economy, and we will continue to invest in it."

-At its annual developer conference, Bronstein announced that the company has tried out online ads with partners including Warner Bros. and Vans, using an experimental "portal" ad format.

-That provides for users who interact with a brand to be automatically transported to the brand's virtual community in Roblox. Tests have left Warner Bros. "fascinated" with results, Bronstein said.