The phenomenon of children’s games
received a flurry of buy recommendations Monday morning, including hedging initiations from bankers who advised the firm’s direct listing on the New York Stock Exchange last month. Wall Streets analysts praise the company as a combination of mobile gaming and social media.
Some say its share (symbol: RBLX) could double.
Roblox stock has already risen in half since its debut on March 10 to $ 45. On Monday morning, the stock added 5% to hit $ 71 as
BofA Securities and Truist weighed on buy recommendations.
The company provides a software platform for an army of independent game developers who create virtual landscapes, adventures and collectibles for a young audience that reached 33 million daily users last year. These young people spend an average of 154 remarkable minutes a day on Roblox gaming, exchanging messages and making purchases with the company’s digital currency, whose actual cash receipts have increased from $ 694 million in 2019 to 1.9 million dollars. billion dollars in 2020.
Revenue in 2020 was $ 924 million, due to deferrals required under accounting rules, with a net loss of $ 253 million. Still, operating cash flow for the year was $ 590 million and free cash flow, after capital expenditures, was $ 411 million.
Morgan Stanleys Brian Nowak wrote in his initiation note that Roblox is still in the early stages of growing its user base and could increase the daily total by 21% in each of the next few years. Even if it does, he said, the company will only have tapped 14% of the population aged 5 to 24 in existing markets by 2024.
These markets do not include China, where Roblox is considering a joint venture with
Tencent Musical Entertainment Group
(TME), he noted. The company does not earn much today from advertising either.
Nowak valued the stock at Outperformance, with a target of $ 80 for the price, but those opportunities could add to the upside, he wrote.
The stock is currently trading at 16 times Morgan Stanleys’ forecast for sales per share for years to come, which Nowak says is in line with other social media stocks, such as
(TWTR). But Roblox is also benefiting from the strong user engagement of an online games company, so the analyst says it is expected to achieve a multiple of 19 times sales, which would allow it to hit its goal of $ 80. .
The success in China could add an additional $ 300 million to the $ 1.2 billion operating cash flow baseline scenario it predicts for 2024. More worldwide ad sales from Roblox could add $ 900 million dollars. Together, these opportunities give Morgan Stanley a bullish price target of $ 130 for the stock. This is almost double the current level.
BofA analyst Ryan Gee launched his cover on Monday with a buy rating and a slightly more modest price target of $ 78. Roblox was the # 1 mobile app uploaded last year to
s store, he notes, and the third most downloaded in the world.
External developers create the content for the platforms, with over 20 million experiences in the current catalog. In addition to geographic expansion, Gee argues that Roblox may add older users as Gen Z matures and developers build features for an older audience.
[Roblox] is one of the more compelling alternatives to traditional mobile game developers, Gee wrote in Monday’s introductory note. If the company can grow faster than it currently models and better monetize its users, the BofA analyst estimates the stock could reach $ 100.
Truist analyst Matthew Thornton also began coverage on Monday, with a buy note and a price target of $ 78. Including China, the company’s daily users could approach 70 million by 2024, he estimates. That could take 2024’s cash revenue from user purchases and advertising to $ 3.2 billion, according to the analyst. Free cash flow could reach $ 1.5 billion, with opportunities in subsequent years to add revenue from education, concerts, movies, and e-commerce.
The Roblox platform benefits from two mutually reinforcing network effects, with social media and game content, Thornton says.
Write to Bill Alpert at [email protected]