Roblox stock has sunk 50% this year; Is now the time to buy?
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Roblox (NYSE:RBLX) stock has sunk 50% since the beginning of the year, despite ongoing hype about the âmetaverseâ and what role the kids gaming platform will play it in. Is now the time to buy?
Disappointing Results vs. Metaverse Potential
Shares of Roblox, which went public in March 2021, have been trending downward since Nov. 22, when it hit a 52-week high of $141.60 per share. The stock reached a 52-week low on Feb. 24 of $43.10, about a week after it released its fourth quarter earnings report. Shares have tumbled 50% since the beginning of January.
In comparison, shares of fellow metaverse player Meta Platforms (NASDAQ:FB), formerly known as Facebook, have slid 37% since the end of 2021.
Roblox shares were hammered on Feb. 16, tumbling 27% the day after the company released a quarterly earnings report that fell short of Wall Street expectations. The gaming company reported a net loss of $0.25 per share and bookings of $770M, compared with analyst estimates of a loss of $0.07 per share and bookings of $772M.
Also rattling investors was news that January year-over-year bookings were up only 2% to 3% at $220M to $223M. In comparison, bookings shot up 21% in December and 23% in November from the prior year.
âOur prior view assumed RBLX would continue to grow users and bookings at outsized rates through reopening. We were wrong,â wrote Morgan Stanley analysts, in a note released after the earnings report. The firm lowered its rating on the stock to equal weight from overweight and its price target to $65 from $115.
But Morgan Stanley analysts also saw value in RBLX as a metaverse play, calling the firm a leader in the emerging space. They added that they would be watching for catalysts such as new developer tools, more branded and premium content experiences, and greater integration of e-commerce to bolster their bull case for the stock. 
Also weighing on Roblox in February was a BBC report about the company's ongoing battle to keep sexually explicit content off its site, which caters to children and teens. 
Analysts at Benchmark said in a note released mid-February that they were concerned about Robloxâs ability to keep its platform safe for kids.
âWe think RBLX appeals to young children,â wrote the Benchmark analysts, who have a sell rating on the stock. âWe are not convinced that RBLX offers a safe play environment and worry over the potential for child abuse.â
Benchmark analysts also said they were skeptical about the company's growth potential.
âThe metaverse platform was a social utility during the pandemic, in our view, which could unwind as social restrictions are now removed, schools stay open, and parental spend reallocates,â they wrote. âWe are cautious over ambitious growth initiatives that extend beyond core game play.â
Is RBLX a Buy?
Following the earnings report, Bank of America analysts were among those who took a more positive view. They stated in a recent note that products, not year-over-year comps or guidance, were the real catalysts for the stock. The firm reiterated its buy rating, even as it lowered its price objective to $71 from $84.
âRBLX is the âMetaverseâ category leader,â they wrote. âRoblox is not saddled with legacy media businesses that require transition to a Metaverse and can thus allocate 100% of its resources toward maintaining Metaverse product leadership.â
On average, Wall Street analysts rate the stock a buy. Of the 15 analysts tracked by SA, eight rated it a strong buy, three a buy, three a hold and one a strong sell. SA authors, on average, also rated the stock a buy.
For a more bullish take on Roblox, check out SA contributor Star Investments' "Roblox: Optimistic About the Future After a Dose of Reality." For a more bearish view, read SA contributor Bill Maurerâs "Roblox Growth Hits a Wall."