Roblox Corp (NYSE:RBLX) will be under pressure on Wednesday to live up to high expectations as it releases results for the fourth quarter.
The self-build and play video games developer will drop its results into a market that’s still impressed with its recent performance which set it apart in an otherwise challenging trading period for the sector. That’s a reason for caution, according to California-based stockbroker Wedbush, which has a ‘neutral’ rating for the stock.
“Roblox ended 2022 with a December bookings performance of US$430 million – US$439 million that significantly exceeded expectations, but the drivers of the beat remain unclear,” Wedbush analyst Nick McKay said in a note.
“We are maintaining our ‘Neutral’ rating due to valuation, with the share price reflecting consensus FY:24 bookings and adjusted earnings (EBITDA) multiples of around 5.9x and 60x.
“We are skeptical that Roblox can maintain its best-in-class valuation multiples over the near term unless it consistently outperforms expectations for monthly key metrics.”
The Wedbush analyst said that predicting monthly performance is very challenging for those tracking the video game developer (which mostly generates bookings through in-game micro-transactions from its free-to-play game) and that’s a key factor in the stock’s volatility.
“To maintain its multiples over the longer term, Roblox must eventually improve its profitability by a significant amount, and must become and remain the de facto metaverse leader in the eyes of many investors,” McKay said.
He added: “A trio of monthly key metrics reports have provided investors with a solid grasp around what quarterly bookings should look like, among other figures.”
According to its analysis, Wedbush forecasts US$891 million of fourth quarter bookings driving US$88 million of EBITDA which would be a shade beneath the market consensus view that predicts US$104 million of EBITDA on US$881 million of bookings.