Roblox Corporation (RBLX) is a technology company that administers the Roblox Platform, a human co-experience platform where users engage with one another to explore and construct user-generated and 3D experiences. Its platform is driven by user-generated content inspired by gaming, entertainment, social networking, and even toys.

Its shares have declined 66.9% over the past year and 73.9% year-to-date to close the last trading session at $26.87. In addition, the stock is currently trading 81% below its 52-week high of $141.60, which it hit on November 22, 2021.

The firm missed Wall Street’s estimates for two quarters in a row as COVID-19 pandemic restrictions eased and customers resumed their outings. In a letter to shareholders, Roblox stated, “We expect to continue to report net losses for the foreseeable future, even as we anticipate generating net cash from operating activities.”

In addition, recently, Goldman Sachs downgraded the stock from a “neutral” rating to a “sell” rating, making its near-term prospects bleak.

Here’s what could shape RBLX’s performance in the near term:

Poor Bottom-line Performance

RBLX’s revenue increased 39% year-over-year to $537.1 million for the first quarter ended March 31, 2022. Its average daily active users increased 28% from the year-ago value to 54.1 million. However, its bookings decreased 3% year-over-year to $631.2 million. Its loss from operations grew 12.3% from the prior-year quarter to $151.61 million. The company’s net loss surged 19.4% year-over-year to $160.20 million. Its loss per share amounted to $0.27.

Negative Profit Margins

RBLX’s trailing-12-month gross profit margin of 22.5% is 55.8% lower than the industry average of 50.7%. Also, its trailing-12-month ROA, ROC, and net income margin are negative 10.9%, 21.3%, and 25%, respectively. Moreover, its trailing-12-month negative EBIT margin of 22.1% compares to its industry average of 8.9%.

Premium Valuation

In terms of forward Price/Sales, the stock is currently trading at 5.79x, 347.3% higher than the industry average of 1.29x. Also, its forward EV/Sales of 5.13x is 161.2% higher than the industry average of 1.96x. Moreover, RBLX’s forward Price/Book of 32.39x is 1670.7% higher than the industry average of 1.83x.

POWR Ratings Reflect Bleak Outlook

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

Our proprietary rating system also evaluates each stock based on eight different categories. RBLX has an F for Stability which exhibits the stock’s higher volatility than its peers.

Of the 21 stocks in the B-rated Entertainment – Toys & Video Games industry, RBLX is ranked #18.

Beyond what I’ve stated above, you can view RBLX’s ratings for Stability, Momentum, Quality, and Sentiment here.

Bottom Line

RBLX’s stock price has declined considerably year-to-date, owing to its declining financials. Analysts expect its EPS to decline 84.6% and remain negative in the next quarter. Furthermore, the stock is currently trading below its 50-day and 200-day moving averages of $32.41 and $67.02, respectively, indicating a downtrend. So, given the company’s negative profit margins and stretched valuation, we think the stock is best avoided now.

How Does Roblox Corporation (RBLX) Stack Up Against its Peers?

While RBLX has an overall D rating, one might want to consider its industry peers, Sega Sammy Holdings Inc. (SGAMY), which has an overall A (Strong Buy), and Spin Master Corp. (SNMSF), and DoubleDown Interactive Co. Ltd. (DDI), which have an overall B (Buy) rating.

RBLX shares were trading at $29.54 per share on Tuesday morning, up $2.67 (+9.94%). Year-to-date, RBLX has declined -71.36%, versus a -20.76% rise in the benchmark S&P 500 index during the same period.

About the Author: Pragya Pandey

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate. More...

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