Analysts at Wedbush have upgraded their rating on Roblox Corp (NYSE:RBLX) to ‘Outperform’ as the recent sell-off of the stock following its second quarter results has made its risk-reward profile “favorable to the upside.”
Shares of Roblox tumbled more than 20% on Wednesday to below US$30 after the online game creator system posted a wider-than-expected loss for 2Q.
Its net loss was $282.2 million or a loss per share of $0.46, more than the loss per share of $0.30 analysts had expected per Zacks Consensus Estimate.
Revenue also missed expectations of $785 million, up 15% from the year-ago quarter to $680.8 million.
Bookings were up 22% year-over-year to $780.7 million but again fell short of the Street estimate which was $783.8 million.
The Wedbush analysts in a note to clients wrote that Roblox’s 2Q results had brought to light some soft spots within the company, but that they believe that the data trackers, seasonality, and stubbornness contributed to the misses.
“On balance, however, Roblox may have the most compelling growth trajectory among the video game names in our coverage universe after taking into account its user base size, its new products, and the potential to revisit its approach to profits,” they wrote.
With Roblox shares trading well below their price target of $37, the analysts wrote that they were upgrading their rating from ‘Neutral’ to ‘Outperform.’
“We expect patient investors to be rewarded by continued topline growth coming from the expansion of key user metrics, a slew of new product introductions, and a more aggressive approach to cost control in future periods,” they wrote.
The 12-month price target of $37 reflects an enterprise value (EV)/bookings multiple of about six times applied to their 2025 financial year bookings estimate of $4.1 billion.
Roblox shares traded hands at US$30.10 shortly before noon on Thursday.
Contact the author at emily.jarvie@proactiveinvestors.com
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