On Friday, Wells Fargo adjusted its outlook on Roblox Corp. (NYSE:RBLX), reducing its price target on the stock to $37 from the previous $50, while still maintaining an Overweight rating. The adjustment reflects a more cautious stance on the company's near-term financial performance, despite recognizing positive developments in its advertising initiatives.
The analyst from Wells Fargo noted the official launch of video advertisements in the second quarter, estimating that it would reach approximately 60% of Roblox's monthly active users aged 13 and over.
The company's continued recruitment for critical roles and the establishment of third-party partnerships were also cited as positive steps. The expectation is that advertising will become a crucial component of Roblox's business model, with formal ad revenue reporting anticipated to begin in fiscal year 2025.
Still, Wells Fargo has revised its estimates for Roblox's total bookings downward for the second quarter of 2024, as well as for the full fiscal years 2024 and 2025. The new bookings estimates stand at $883 million for the second quarter of 2024, and $4.09 billion and $4.88 billion for fiscal years 2024 and 2025, respectively.
This represents a decrease of 6%, 4%, and 10% for each period. The revisions were made due to lowered expectations for both micro-transaction and advertising revenues.
In line with the bookings adjustment, the firm also reduced its projections for Roblox's adjusted EBITDA. The new forecasts for fiscal years 2024 and 2025 are now set at $555 million and $806 million, respectively, compared to the previous $584 million and $966 million.
The stock price target has been recalibrated to $37 based on a 22.5 times multiple applied to the firm’s 2026 free cash flow per share estimate of $1.63, which is a decrease from the earlier estimate of $1.99 per share.
Despite the lowered price target and estimates, Wells Fargo continues to recommend Roblox as an Overweight stock, indicating a positive outlook on the company's long-term potential.
InvestingPro Insights
Roblox Corporation (NYSE:RBLX) presents a mixed financial picture according to recent data from InvestingPro. With a market capitalization of $19.46 billion, the company's revenue has grown by 25.69% over the last twelve months as of Q1 2024.
Still, the company's gross profit margin during the same period was 20.85%, which may raise concerns about its profitability, especially as analysts do not anticipate the company will be profitable this year. Additionally, the stock's price has experienced significant volatility, with a 31.49% drop over the last three months.
InvestingPro Tips highlight that Roblox holds more cash than debt on its balance sheet and analysts anticipate sales growth in the current year, which could be positive indicators for investors. On the flip side, the company's stock has taken a substantial hit over recent periods, and four analysts have revised their earnings downwards for the upcoming period, suggesting caution may be warranted.
For investors seeking a deeper dive into Roblox's financial health and future prospects, InvestingPro offers additional insights. Subscribers can access a total of 11 InvestingPro Tips, which can guide investment decisions. To enrich your investment strategy, use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription at InvestingPro.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.