The share price of “metaverse first stock” has shrunk sharply, and roblox’s share price has rebounded with mixed results

Author | value pendulum

I gave roblox Corporation (NYSE: rblx) a hold investment rating.

In my previous article on August 12, 2021, I warned that rblx’s " The growth prospect of the company is considered to a great extent; &#;, And pointed out " Bullish investors must consider the risk of valuation downgrade ".

Since my previous update, roblox’s share price has almost halved in the past six months. As of March 3, 2022, the final trading share price of rblx was $45.24, compared with $84.04 when my previous article was published. This article touches on the potential for roblox’s share price to rebound.

I don’t think roblox’s share price will recover to $70 or close anywhere in the short term, because the implied enterprise value income ratio and EV / EBITDA multiple will be very rich and difficult to justify. On the other hand, rblx’s share price may rebound slightly when the company sees its subscription growth accelerate again in the second half of this year. Therefore, I maintain the holding rating of roblox shares.

01

Why did roblox stock fall?

According to the chart below, roblox’s share price significantly underperformed the S & P 500 index, falling 64% since late November 2021.

RBLX自2021年11月下旬以来的股价表现 share price performance of rblx since late November 2021

Roblox’s disappointing bookings for the fourth quarter of 2021 and January 2022 confirmed investors’ biggest concern that the company’s growth momentum will weaken significantly as the economy reopens and covid-19 eases, resulting in a favorable wind for working from home. This concern and concern is the key reason for the weakness of rblx’s share price in recent months.

Rblx announced its financial results for the fourth quarter of 2021 after the market closed on February 15, 2022. The company’s share price fell – 26% from $73.30 as of February 15, 2022 to $53.87 as of February 16, 2022 in response to the latest quarterly results announcement.

According to the company’s fourth quarter 2021 performance presentation slide, roblox’s bookings increased by 20% year-on-year in the most recent quarter to $771.1 million. It is worth noting that this is the slowest increase in bookings in the past 11 quarters.

In contrast, rblx achieved relatively high bookings growth of + 161%, + 35% and + 28% in the first quarter of 2021, the second quarter of 2021 and the third quarter of 2021, respectively. As part of the fourth quarter results release, roblox also revealed that its bookings in January 2022 were between $220 million and $223 million. This means that the month on month decline of 40%, bookings increased by 2-3% year-on-year.

02

Is roblox’s stock expected to rebound?

Looking forward to the future, rblx mentioned in the fourth quarter financial report of the company in 2021, " We will begin to " By the end of this year " For more standardized comparison ".

Roblox still needs to deal with the high base for comparison in the second quarter of 2022, and the company will be in 2021 " May, June " Called " Difficult to compare ". This indicates that roblox may again see an acceleration in year-on-year growth in bookings in the second half of 2022.

In addition, roblox continues to make considerable progress in the company’s key growth areas. In my latest update to the company in August 2021, I emphasized that " Aging " And " International expansion " It is the main medium and long-term growth power of the company.

In terms of aging, rblx saw a 51% year-on-year increase in its users aged between 17 and 24 in January 2022. Users in this age group accounted for about one fifth of the company’s daily active users in that month, as disclosed in its fourth quarter earnings conference call.

With regard to the expansion of foreign markets outside the United States, the Asia Pacific market is the star of rblx. Roblox’s daily active users doubled from 5.6 million in the fourth quarter of 2020 to 11.2 million in the fourth quarter of 2021.

This also means that the proportion of total daily active users obtained by rblx from the Asia Pacific region increased from 15% to 23% in the same period. Roblox also revealed at its recent quarterly results conference that its daily active users in two major Asian markets, India and Japan, increased by more than 100% year-on-year in the fourth quarter of 2021.

In conclusion, the potential rebound of roblox’s share price will be driven by the accelerated growth of bookings, the further development of aging and the expansion of foreign markets.

But the extent of roblox’s share price rebound may not be as important as investors want, which I will discuss in the next section.

03

Can roblox’s stock reach $70 again?

As explained in the previous section, I think roblox’s stock can rebound. But I don’t think roblox’s share price will soon reach $70 again, which means a 55% increase from the company’s share price of $45.24 as of March 3, 2022.

Two factors will limit roblox’s upward space for capital appreciation.

First, roblox’s latest performance in the core markets of the United States and Canada is the main problem.

As shown in the company’s financial report for the fourth quarter of 2021, rblx’s daily active users in the United States and Canada decreased by – 1% year-on-year in the fourth quarter of 2021, while the year-on-year growth rates in the second quarter of 2021 and the third quarter of 2021 were + 5% and + 6% respectively.

It is worth noting that the year-on-year growth range of daily active users in the U.S. and Canadian markets from the first quarter of 2019 to the first quarter of 2021 is + 28% to + 90%.

There are two key negative effects.

One implication is that roblox’s user growth in mature markets in the United States and Canada may have reached saturation point. It is uncertain whether the strong growth of foreign markets such as the Asia Pacific region will fully offset the future weakness of the geographical regions of the United States and Canada.

Another impact is that assuming that the proportion of active daily users from the US and Canadian markets continues to decline, the overall monetization rate of rblx may decline. It is natural to assume that the monetization rate of users in the more mature United States and Canada is relatively high compared with the international market.

In addition, it is worth noting that according to the figure below, roblox’s average monthly subscription volume of independent users has been relatively flat in the past four years, which means that it may not have succeeded in monetizing users in the past.

Roblox每月唯一用户的平均预订量 average monthly bookings of roblox’s unique users

Secondly, even after the recent stock price adjustment, the valuation of rblx is not completely cheap. According to standard & Poor’s capital IQ data, the current consensus of the market on roblox is that the enterprise value income ratio and EV / EBITDA multiple in the next 12 months are 7.9 times and 41.1 times respectively.

According to my calculation, the price target of $70 will be converted into forward EV / EBITDA and enterprise value income ratio of 12.5x and 65.2x respectively. Roblox is unlikely to achieve such a high valuation, and the market unanimously expects the company’s revenue growth rate (+ 15.3%) and EBITDA profit margin (+ 19.2%) to be relatively moderate or less than 20% in fy2022.

04

epilogue

Rblx shares are held shares.

The company’s medium-term prospects are mixed. Roblox is working to expand its user base and diversify its geographic portfolio, and there are encouraging signs based on its recent fourth quarter 2021 results.

However, the slowdown in the growth of daily active users in roblox’s us and Canadian markets is a key headwind, and the current valuation of rblx is not enough to guarantee the buy rating.

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