Roblox: Don’t Chase (NYSE:RBLX) | Seeking Alpha

As discussed in my previous research, Roblox Corporation (NYSE:RBLX) is best bought on weakness and not bought after surges. The global gaming platform just reported a strong snapback in December monthly metrics, highlighting the importance of ultimately focusing on user growth. The recent stock pattern predicts a rally to the low $40s before Roblox runs into strong resistance due to a stretched valuation.

Strong December Bookings

Every month, Roblox reports monthly metrics estimating the performance of the business. The mobile gaming platform faced a difficult start to 2022 due to tough comps from early in covid, when schools were shut down and kids were trapped at home on the gaming platform all day. Over the course of last year, the monthly metrics have gotten far better due to both easier comps and constantly growing user metrics due to the expansion outside of the U.S.

Roblox Corporation stock is surging due to strong December metrics, with daily active users (DAUs) again up close to 20%. In total, DAUs grew an impressive 18% YoY to reach 61.5 million, which is impressive considering the tough holiday hurdle from 2021.

The number that really stands out is the 21% growth in engagement, which naturally feeds revenue and bookings growth. In total, hours engaged reached 4.7 billion.

For the most part, investors can ignore the revenue metrics and focus solely on the estimated bookings. The key average bookings per day were roughly flat at $7 per DAU. Roblox has now moved the ABPDAU back into growth mode, providing a potential boost to bookings in excess of any user/engagement growth in 2023.

When combined with the user and engagement growth, Roblox Corporation total bookings grew by up to 20% to reach an estimate of $430 to $439 million. On a constant currency basis, revenues grew between 20% to 22%.

The December bookings are massive when considering Roblox had been stuck delivering quarterly bookings in the range of $650 million since Q4’20. While Q4s are historically strong, Roblox was unable to build on the bookings of the last couple of holiday quarters.

The mobile gaming company has now provided the following bookings metrics for Q4’22:

• October – $233 million
• November – $224 million
• December – $435 million
• Q4 total – $892 million.

Roblox is now forecasting a huge step above the trend that started in Q4’20, with bookings mostly in the range of $650 to $700 million per quarter outside of the Q4’21 bookings of $770 million. In addition, the company is guiding to solid roughly 16% growth without factoring in currency impacts.

No Longer Cheap

The key takeaway in the prior research article highlights the opportunity in Roblox. While the market generally appeared negative on the stock story, investors buying the dips in Roblox are generating strong gains, while those chasing the rallies haven’t made a lot of money.

The last article was published on December 12, when Roblox traded at $35. The stock fell all the way into the $25s over a 4-day period at the end of December. Anyone buying this dip to the mid-$20s as recommended has made a gain topping 40% now without the stock even rallying much during the month.

At $37, Roblox suddenly has a market cap topping $22 billion for a company with peak quarter bookings just shy of $900 million. The company appears on pace to top the $3.2 billion estimate for 2023, but the stock already trades at 7x these estimates.

Roblox isn’t necessarily expensive at $37, but the stock only offers upside commensurate with the estimated 15% to 20% growth rates over the next few years. The company does have ~$2 billion in net cash to continue funding growth, though Roblox hopefully shifts back to being cash flow positive with the ability to control costs in this tough tech environment combined with higher bookings.

Takeaway

The key investor takeaway is that Roblox Corporation remains a phenomenal play on the Metaverse potential and interactive gaming. Like most in the technology and gaming sector, Roblox Corporation faced tough comps during 2022 due to covid boosts in the prior periods.

Investors shouldn’t chase Roblox Corporation stock here, knowing the near-term upside is probably only into the low $40s.