Roblox Corporation (RBLX - Get Rating) in San Mateo, Calif., is a technology company that operates a human co-experience platform or Roblox Platform, where users interact with each other to explore and develop user-generated and 3D experiences. The company operates the Roblox Platform as a live service that allows users to play and socialize with others for free. Its platform is powered by user-generated content that draws inspiration from gaming, entertainment, social media, and even toys.

According to the global investment bank Citi, the total addressable market for the metaverse economy could reach $8 trillion – $13 trillion by 2030, with up to five billion users. However, the investment bank’s report also notes that considerable investment would be required in computing, storage, network infrastructure, consumer hardware, and game development platforms. Hence, only financially strong companies that can afford to make large investments will be able to grow.

RBLX shares have declined 46.3% in price over the past nine months and 55.3% year-to-date to close the last trading session at $46.02. In addition, they are currently trading 67.5% below their 52-week high of $141.60, which they hit on Nov. 22, 2021.

Here is what could influence RBLX’s performance in the upcoming months:

Disappointing Financials

RBLX’s total cost and expenses increased 87.1% year-over-year to $708.41 million for the fourth quarter, ended Dec.31, 2021. The company’s consolidated net loss came in at $147.25 million, compared to a consolidated net loss of $60.53 million in the year-ago period. Also, its adjusted EBITDA declined 25.6% year-over-year to $168 million. In addition, its free cash flow declined 34.8% year-over-year to $77.28 million.

Low Profitability

In terms of trailing-12-month gross profit margin, RBLX’s 22.27% is 56.1% lower than the 50.83% industry average. Its ROCE, ROE, and ROA are negative compared to the 7.36%, 3.77%, and 3% respective industry averages.

Stretched Valuation

In terms of forward EV/S and P/S, RBLX’s 8.26x and 8.83x are higher than the 2.24x and 1.59x respective industry averages. Also, its 44.22x forward EV/EBITDA is 372.4% higher than the 9.36x industry average.

POWR Ratings Reflect Bleak Prospects

RBLX has an overall D rating, which equates to Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. RBLX has a D grade for Value, which is in sync with its 43.22x forward P/B, which is 1,684.4% higher than the 2.42x industry average.

Furthermore, the stock has a D grade for Sentiment, which is consistent with analysts’ expectations that its EPS will remain negative in fiscal 2022 and 2023.

RBLX is ranked #20 of 23 stocks in the Entertainment – Toys & Video Games industry. Click here to access RBLX’s growth, Momentum, Stability, and Quality ratings.

Bottom Line

Despite trading below $50, RBLX looks overvalued at its current price level. Moreover, its poor financials and lower-than-industry profitability we think make it best avoided now.

How Does Roblox Corporation (RBLX) Stack Up Against Its Peers

RBLX has an overall POWR Rating of D, equating to a Sell rating. Therefore, one might want to consider investing in other Entertainment – Toys & Video Games stocks with an A (Strong Buy) or B (Buy) rating, such as Playtika Holding Corp. (PLTK - Get Rating), Spin Master Corp. (SNMSF - Get Rating), and Electronic Arts Inc. (EA - Get Rating)

RBLX shares were trading at $48.72 per share on Monday morning, up $2.70 (+5.87%). Year-to-date, RBLX has declined -52.77%, versus a -4.31% rise in the benchmark S&P 500 index during the same period.

About the Author: Dipanjan Banchur

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets. More...

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